OPEC Plus and Russia have reportedly reached a tentative agreement to cooperatively cut oil production to around a fifth of current rates to stabilize global oil prices. The group also stated on Thursday that they expect the United States and other global producers to join in the effort to reverse the effects of the coronavirus pandemic on the industry.
According to OPEC Plus, with most of the participants now on board with the plan, the agreement now hinges on Mexico and the US to sign the pact. Mexico reportedly did not agree with the production cuts it was asked to make. Talks with the country and other top global energy ministers will resume on Friday.
The proposed production cuts will drop the current global output by about 10 million barrels per day, or roughly 10 percent of current supplies. A cut of 5 million bpd will also be allocated amongst other global producers. Even with the unprecedented 15 million bpd production cut, experts believe that it will likely not be enough to balance the current supply and demand curve.
OPEC documents showed that all of its members have tentatively agreed to cut their output by around 23 percent. Saudi Arabia and Russia will each cut 2.5 million bpd, while Iraq will cut its production by 1 million bpd.
Since the start of the pandemic, global oil demand has plummeted by an estimated 30 million bpd. This was a direct result of the travel restrictions and stay-at-home orders imposed by governments worldwide to mitigate the spread of the coronavirus. With planes now grounded and vehicle usage at a minimum, demand for fuel has gone down.
In the US, Trump had warned that he might be forced to impose tariffs on oil imports to the country if OPEC and Russia do not come to an agreement. The US president stated that the drastic measure was meant to protect the country's oil industry and its hundreds of thousands of workers.
A source inside the White House revealed that both OPEC and Russia had talked with Trump over the phone to discuss possible cooperation to resolve the crisis. Officials from OPEC and Russia had previously stated that solving the issue would require the cooperation of all major producers, including the US.
Russia's top oil official, Kirill Dmitriev, told reports in an interview that they are expecting producers outside of OPEC to join the effort. He added that he expects commitments to be made this week, during the G20. The meeting, which will be held this Friday and hosted by Saudi Arabia, will include energy ministers from the G20.
