After long-lasting talks and preliminary decisions, the OPEC+ member-states officially reached all necessary agreements. The final figures do not differ much from the previously announced volumes, but the issue with Mexico will be regarded as resolved for some time.
The parties agreed to reduce output by 9,700,000 barrels daily, with the main burden to fall on Russia and Saudi Arabia. The total reduction may reach 19,000,000 barrels.
The deal will last for two years with its possible termination ahead of time or its prolongation. Its start is announced on May 1, 2020. The sides were negotiating the deal from April 9 until April 12 with a break for the G20 energy summit. In general, the agreement will include 23 OPEC+ countries, while other countries, like, for example, the United States and Canada, also announced the production cuts, though formally they have nothing to do with the deal.
The reduction by 9,700,000 barrels will continue from May to June. In the second half of the year, production will drop by 7,700,000. From January 1, 2021, and until the completion of the deal in May 2022, the output will be cut by 5,800,000 barrels.
We announce the conclusion of a historic agreement on reducing production by almost 10,000,000 barrels by the OPEC+ members starting May 1, Kuwait's Energy Minister Halid Al-Fadhel wrote on Twitter.
At the same time, Saudi Arabia, together with Kuwait and the UAE, decided to cut production by an additional 2 million barrels daily, as Iranian oil minister Bijan Zangane said. G20 countries undertake to cut output by 3.7 million barrels. The total reduction will amount to 15.4 million barrels, but it can be brought up to 19 million, sources do not exclude.
For his part, Donald Trump thanked Vladimir Putin and the Saudi king, Salman bin Abdul-Aziz Al Saud, for the 'wonderful deal' in oil. He emphasized that the OPEC+ agreement 'will preserve hundreds of thousands of jobs in the US energy sector' and will stabilize the global financial and energy markets.
We never witnessed such a situation. Three years ago, the supply exceeded demand by 3 million barrels per day, and now by already 20 million barrels due to falling demand, Russian Energy Minister Alexander Novak said.
He stressed the importance of participation of large producers from among the G20 countries.
Russia undertakes to cut output by 2,500,000 barrels. The base will be the production of 11 million barrels. Thus, the reduction will exceed 22%.
Novak believes that Russian companies are ready for such a deal in production. He said he was in constant contact with producers.
Companies will be able to conduct certain technical and technological events that will allow them to achieve the numbers assumed by the Russian Federation, the minister said in an interview with Russia 24 TV channel.
Meanwhile, LUKOIL co-owner Leonid Fedun called this agreement the 'Brest Truce' admitting that without it, Russia would have had to reduce production to 50%.
It would be a carpet closure (of wells). Production would have fallen much more. We would not have the opportunity to ship oil, other than to our refineries, he told RBC.
The main stumbling block of the deal was Mexico, which did not agree to reduce production by 400,000 barrels. At the same time, Riyadh insisted on such numbers. Otherwise, the Saudis were ready to stop negotiations. Donald Trump intervened in the case, promising to help Mexico in reduction and pledging to take on most of the cuts.
As a result, Mexico's Minister of Energy Rocio Nale confirmed the country's participation in the OPEC + deal.
Mexico thanks OPEC countries for their support in the emergency meeting. A unanimous agreement will lead to a decrease in the oil 'platform' by 9.7 million, she wrote on Twitter.
In total, Mexico will cut output by 100,000 barrels daily in May-June. At the same time, it is not yet clear what will happen after this period, since this issue was not discussed at the meeting.
The OPEC + deal can be confidently called balanced since it meets the interests of all countries. Brent has grown 4% by 8:15 Moscow time, to $32.7, while WTI experienced a 4.3% increase, to $23.7. Experts believe that the previous return to $22 per barrel will not happen anymore. Soon, the cost of oil may reach $40 and gain a foothold at this mark. Achieving these figures would not have been possible without the deal.