Major oil producing countries around the world reach a deal to cut oil production in May and June as a measure to stabilise the market. OPEC+, the group which is composed of OPEC member countries and their allies, including Russia, Saudi Arabia and Mexico reach a deal to cut oil production by 9.7 million barrels per day, the deepest cut ever agreed to by the world’s oil producers. After that, the group will steadily ramp up production until the agreement expires in April 2022.
The group had been seeking to cut production in order to buoy oil prices, which fell to 18-year lows in recent weeks. The drop came after Saudi Arabia and Russia abandoned years of production cuts in early March, launching a price war by flooding the market with crude. The coronavirus, meanwhile, dealt a devastating blow to energy demand, pushing prices even lower leading to the current deal.
While this appears to be a historic deal, the deal is unlikely to solve the demand crisis as the agreed reduction in output amounts to only about 10% of the world’s normal supply of oil, far below the estimates amid the coronavirus pandemic. On Monday, Oil prices moved a bit higher following the news. US oil prices were up nearly 2% to $23.20 a barrel. Even if oil holds onto gains Monday, though, prices are still well below where they were trading earlier this year — above $60 a barrel.
Earlier on Thursday, the Group had tried to reach an agreement to cut 10 million barrels a day, but Mexico would not sign onto that deal as the Mexican President Andrés Manuel López Obrador on Friday said his country would cut its output by 100,000 barrels per day. While that amount was far less than what was proposed at Thursday’s meeting, López Obrador added that US President Donald Trump offered to cut US production by 250,000 barrels per day to compensate for Mexico.
Impact on Africa
Crude oil is facing the biggest demand shock in its history, falling below 30 dollars a barrel, due to the cessation of world trade following the Covid-19 pandemic and at the same time the disagreement between Saudi Arabia and Russia. With this disagreement settled by the curent deal, the impact will equally be felt on the continent with major oil producing countries already greatly affected.