Global oil producers will soon announce a deal to reduce output by around 15 million barrels per day (bpd) from a baseline of October 2018 to cater for a slump in demand caused by the coronavirus pandemic, according to a Saudi oil industry source.
The 15 million number was initially floated by US President Donald Trump on April 2 as the upper end of the range of expected cuts.
The cut, to be implemented on May 1, will actually remove more than 15 million bpd from the world market because several countries including Saudi Arabia and the UAE have recently increased output, the Saudi source added.
“There will be an announcement explaining the outcome of the reduction in terms of quantities. It will be in the area of 15 million barrels per day, but the exact number is not finalized,” the source told Al Arabiya English.
“The cut from current production will be much bigger than 15 million,” he added.
The comments follow a meeting of energy ministers from the Group of 20 most advanced economies on Friday which ended without a specific figure for the total oil production cuts that were discussed.
On Thursday, the Organization of the Petroleum Exporting Countries (OPEC) and allied nations, a group known as OPEC+, announced an agreement to cut 10 million bpd from a baseline of October 2018, conditional on the agreement of Mexico to cut 400,000 bpd of its production, which it initially balked at.
Mexican President Andres Manuel Lopez Obrador said on Friday that US President Donald Trump agreed to cut an additional 250,000 bpd on Mexico’s behalf on top of any other reduction.
Thursday’s deal reinstates an agreement between OPEC and its allies including Russia to manage oil supplies that dates back to 2016. Russia had walked away from that arrangement at the beginning of March, which led to a free-for-all among oil producers, putting further pressure on prices. Thursday’s deal included an exceptional clause relating to Saudi Arabia and Russia which established the baseline for cuts by both countries at 11 million bpd.
Saudi Arabia is currently producing 12.3 million barrels per day, up from 9.7 million bpd earlier this year, having opened the taps to the maximum after the collapse of the agreement with Russia in March. The UAE has also increased output by about 1 million bpd since March, so these extra barrels currently under production would be in addition to the 15 million bpd expected cut.
Oil demand is expected to fall by 20 million bpd in April and by 12 million bpd on average in the second quarter, according to estimates used by OPEC.
But there is still great uncertainty about the future as much the global economy grinds to a halt with much of the world in lockdown.
Analysts said any deal would be difficult to enforce.
“Monitoring and compliance will be very challenging,” said Omar Al-Ubaydli, a researcher at Derasat in Bahrain.
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