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Opec and Russia agreed to make deep cuts to oil production

Opec and Russia agreed to make deep cuts to oil production

Vienna, April 10 - Neftegaz.RU. Market observers breathlessly awaited the outline of an agreement between the OPEC and its allies to curb production and begin balancing a global market awash in crude. Russian energy minister Alexander Novak said before the virtual meeting of OPEC: "In these conditions, prompt and timely measures are needed, and we need joint efforts involving all oil-producing countries in order to reduce the substantial level of overproduction flooding the world market".

OPEC and Russia agreed `to a 2-month crude production cut of 10 million barrels a day. Saudi Arabia and Russia agreed between them to cut about 5 million barrels a day. The goal of the meeting was to help balance the oil market that has suffered from a drop in demand tied to efforts to stop the spread of coronavirus and a price war between Moscow and Riyadh that has flooded the world with crude.

Oil prices reacted poorly to the largest production cut in OPEC’s history, as it had hoped for a larger cut.

OPEC Secretary Gen. Mohammed Barkindo said: "I call on oil producers, to look at the market outlook we present, and stand shoulder-to-shoulder to help this vital global industry survive. For the current quarter, around 15% of global oil consumption has evaporated and this huge market imbalance needs to be urgently addressed."

The OPEC secretariat's analysis of the market now sees a 6.8 million b/d contraction in global oil demand for the whole of 2020, including close to 12 million b/d "and expanding" for the 2nd quarter.

Non-OPEC production will fall 1.5 million b/d in 2020, not enough to make up for the plunge in demand, requiring OPEC+ members to step up efforts to balance the market, Barkindo said.

"These are staggering numbers," Barkindo said. "For the current quarter, around 15% of global oil consumption has evaporated and this huge market imbalance needs to be urgently addressed." At current rates of supply and demand, global crude oil storage capacity will fill up in the month of May, he added.

Novak called the looming crunch in oil storage "alarming." "All this can lead to serious consequences for the oil industry and the world economy as a whole,"  

Saudi Arabia and Russia, the 2 biggest producers in the deal, hope that the US and Canada will also participate, when energy ministers of the G20 nations meet on April 10. OPEC+ ministers will meet again June 10 via videoconference to review market conditions and decide whether any changes are needed