Oil-producing nations agree to historic 10% cut in production
By Caoimhe Toman
Date: Monday 13 Apr 2020
(Sharecast News) - Major oil producers Saudi Arabia and Russia reach a truce after collapse in demand and agree to cut global oil production by almost 10% to protect the market from coronavirus impact.
Members of the Organization of Petroleum Exporting Countries and its allies agreed to withhold almost 10m barrels a day from the next month as lockdowns caused by the Covid-19 led to a fall in demand and a collapse of oil prices.
Oil prices fell to 18-year lows of less than $28 earlier this month due to fears of a global economic recession and travel restrictions.
The deal also marks a truce in the oil price war brewing between Saudi Arabia, Opec's de facto leader, and ally Russia.
The Opec+ has also called in help from major oil producers outside the alliance - including Brazil, Canada, Norway and the US - which could double the size of the unprecedented deal to 20m barrels a day.
Oil prices climbed to $31 a barrel in response to the deal.
Market analyst for AvaTrade Naeem Aslam said on Monday: "Oil prices are up today--after falling to a two-decade low-on the back of this agreement. Both crude and Brent prices spiked nearly 8% at the open but remained shy of their Thursday levels. Basically, after the first few seconds, oil prices retraced and gave up most of its bulk gain. Remember, crude prices soared above the $28 mark before giving up all the gains and dropped below the $23 mark briefly on Thursday last week. At the time of writing this report, crude and Brent prices were up by over three percent.
"In my previous discussion, it was mentioned that the best-case scenario for crude oil prices is to reach the $30 mark. A cut above 15 million barrels a day could push the prices near $35. However, the fact is that crude oil prices have struggled to reach $28, as the high of the day for crude is 24.74. The reason that we have not seen a massive spike in oil prices is that the actual oil production cut is not even 10 million barrels a day, meaning the demand shock still outweighs the supply," he added.
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