Opec Production Cut Agreement

Prince Abdulaziz also pointed out that some OPEC member states, which failed to fully comply with their individual production cuts in May and June, will reduce their crude oil production in July, August and September. One of the risks is that the recovery of the global economy from the worst pandemic passport will prove more difficult than investors hope. While reduced production and the voluntary closure of oil wells have helped bring demand and supply closer to balance, there are still huge oil reserves in fuel tanks and on vessels that could flood the market. At the 9th (extraordinary) ministerial meeting of OPEC and non-OPEC on 9 and 10 April, the important and responsible decision to adapt production was underlined. McNally pointed out that the fall in prices in April had dramatically changed the dynamic between Saudi Arabia and Russia, which waged an outdated price war after a failure of the OPEC meeting in early March. The Saudis sharply increased production in April, just as the effects of global closures were hardest hit by oil demand. Oil ministers from the Organization of petroleum exporting countries and other Russian-led producers met via video conference on Saturday and agreed to continue to cut 9.7 million barrels per day – or about 10 percent of world production in normal times – until July, according to an OPEC press release. Many of the world`s leading oil producers agreed on Saturday to extend record cuts in oil production, which have helped support oil prices since they collapsed in April in the depths of the coronavirus pandemic. Oil prices have responded in terms of in-kind contributions and have been rising steadily since the fall in mid-April, forcing oil futures below zero and reaching the levels seen decades ago. However, in the run-up to the June meeting, market participants were concerned that a premature increase in production would jeopardize the substantial progress already made. As the trigger for the increase in production was on July 1, Saudi Arabia and Russia agreed last week to extend production cuts by one month and postpone all production increases until August. On 6 June 2020, the Organization of the Petroleum Exporting Countries (OPEC) and the main pro-oil allies, collectively known as OPEC, unanimously agreed to extend production cuts by about 10 million barrels per day until the end of July. On April 12, OPEC agreed to a record reduction in oil production of 9.7 million barrels per day to stabilize oil markets.

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Benjamin Sanchez