OPEC+ Agrees to Cut 10 Million Barrels Starting Next Month (Update)

[Asia Economy Reporter Naju-seok] Oil-producing countries including Saudi Arabia and Russia have agreed to cut daily oil production by 10 million barrels in response to the decline in oil demand caused by the novel coronavirus disease (COVID-19). Despite the largest-ever production cut agreement, oil prices fell.

On the 9th (local time), OPEC, including Saudi Arabia, and non-OPEC member countries such as Russia held an OPEC+ meeting via video conference to discuss oil supply and demand issues. Through this agreement, Saudi Arabia decided to reduce its current daily oil production from 12 million barrels to 8.7 million barrels. Russia also agreed to lower its production from the current 10.4 million barrels to 8 million barrels. In addition, the other 21 OPEC+ countries, excluding Saudi Arabia and Russia, agreed to reduce daily oil production by 5 million barrels.

[Image source=Yonhap News]

The OPEC Secretariat announced that it will cut daily oil production by 10 million barrels in May and June, then maintain a reduction of about 8 million barrels until the end of this year. Afterwards, it plans to reduce production by 6 million barrels until April 2022.

Despite the large-scale production cut agreement, oil prices actually fell. Some media outlets reported that the OPEC+ production cut would exceed market expectations and reach 20 million barrels, but the actual agreement was limited to 10 million barrels, causing disappointment. On the New York Mercantile Exchange (NYMEX), May delivery West Texas Intermediate (WTI) crude oil prices rose as much as 12% intraday to $28.36, but after confirmation of the 10 million barrel cut, prices dropped 9.3% to close at $22.76 per barrel. The June Brent crude on the London ICE Futures Exchange also showed a sharp rise and fall, ending with a 2.5% decline to $32.03 per barrel.

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