OPEC Deal: Oil price war ends with historic deal to cut production
OPEC Deal: The OPEC+ nations will cut 9.7 million barrels a day, just below the initial 10 million.
OPEC Deal: A historic deal between the OPEC+ alliance, the world’s top oil producers, will cut global oil production and end the oil price war. The OPEC deal came through after week-long bilateral talks and four days of video conferences between ministers from across the world including the OPEC+ alliance and G20 nations.
Under the historic OPEC deal, the OPEC+ nations will cut global crude output by 9.7 million barrels a day, a little less than the initial plan of 10 million barrels. The deal is aimed at bringing an end to the oil price war that gripped the world due to the COVID-19 pandemic.
The deal is expected to pave the way for stability in both oil-producing nations and most oil-consuming nations.
COVID-19 impact on Oil industry
With several nations calling for complete lockdowns in the wake of the coronavirus outbreak, virtually many cities and towns came to a standstill with the virus paralysing the air and ground travel. With people staying at home for over a month in most countries, the demand for gas plummeted and the oil prices fell to an 18-year low. This threatened the future and stability of the oil-dependent states and piled up more challenges for the central banks.
With COVID-19 refusing to die down, many countries have extended their lockdowns. The death toll due to the coronavirus has crossed 1 lakh and unemployment is shooting off the roof. The oil-producing nations are now more worried about consumption than supply.
OPEC+ Deal: Key Highlights
• The OPEC+ nations along with ministers from across the world sealed the deal through a video conference call on April 12, 2020.
• The talks had almost threatened to fall apart because of resistance from Mexico. However, US President Donald Trump played a major role by intervening and brokering the new OPEC deal between Saudi Arabia and Russia.
• The OPEC+ nations will cut 9.7 million barrels a day, just below the initial 10 million.
• The US, Brazil and Canada will contribute 3.7 million barrels on paper as their production declines.
• Mexico has won a diplomatic victory as it will be required to cut 100,000 barrels, which is less than its pro-rated share. Mexican President Andres Manuel Lopez Obrador had earlier pledged to bolster Mexico’s oil-production prowess.
• OPEC+ was also seeking a cut of 5 million barrels a day from producers in the Group of 20. The group, however, has not mentioned any curb in its output till now.
What is OPEC?
The Organization of the Petroleum Exporting Countries (OPEC), is an intergovernmental organization comprising 13 nations. The organisation was founded on September 14, 1960 by five nations- Saudi Arabia, Iran, Iraq, Kuwait and Venezuela.
The OPEC members account for around 44 percent of global oil production and about 81.5 percent of the world's proven oil reserves.
Hence, OPEC has a major influence on global oil prices. A larger OPEC+ group was formed in late 2016 to gain more control over global crude production.
The main of the organisation is to coordinate and unify the petroleum policies of its member countries and ensure the stability of oil markets to secure an efficient, economic and regular supply of petroleum to consumers and a steady income to the producers.
The current OPEC members include Saudi Arabia (the de facto leader), Iran, Iraq, Kuwait, Libya, Nigeria, Venezuela, Algeria, Angola, Equatorial Guinea, Gabon, the Republic of the Congo and the United Arab Emirates. Former members of the group include Ecuador, Indonesia and Qatar.