OPEC-Russia Agree to Cuts, Mexico Threatens Deal
Oil prices rallied to their highest level in several weeks on Thursday on the news that a group of 23 producer nations had reached a deal on production cuts, following more than a month-long standoff between leading producers Saudi Arabia and Russia. Though the deal was agreed on by all OPEC and non-OPEC producers participating in the meeting, reports that Mexico had abruptly exited the talks sent prices tumbling again.
The Brent crude contract for June delivery settled around US$31.5 per barrel on Thursday, having reached an intra-day high above US$36 per barrel when news of the production cut deal first broke. The near-month contract for WTI crude closed at US$22.8 per barrel, dropping from an intra-day peak of US$28 per barrel. Markets remained closed on today on account of Good Friday.
The group stated it plans to cut output by 10 million barrels a day for an initial period of two months beginning in May, which would be followed by cuts amounting to 8 million barrels per day for a further six month period from July through till the end of the year. Thereafter, the proposed cuts would be gradually tapered until April 2022. The cuts would amount to approximately 10% of global oil supplies, even as analysts estimate that the expected drop in global oil demand in the current quarter due to the impact of the coronavirus epidemic range from 8 million barrels to as high as 20 million barrels per day.
Talks to finalize a deal are expected to continue today during a virtual meeting of all the G20 energy ministers.