The OPEC oil cartel and nations including Russia have agreed to boost oil prices by cutting as much as ten million barrels a day in production, or a tenth of global supply. More countries, including the United States, were discussing yesterday their own cuts in what would be an unprecedented global pact to stabilise the market.
The agreement between OPEC and partner countries aims to cut ten million barrels per day until July, then eight million barrels per day till the end of the year, and six million a day for 16 months beginning in 2021.
Mexico had initially blocked the deal but its president, Andrés Manuel López Obrador, said yesterday that he had agreed with US President Donald Trump that the US will compensate what Mexico cannot add to the proposed cuts.
“The United States will help Mexico along and they’ll reimburse us sometime at later date when they’re prepared to do so,” Trump said at a White House press briefing yesterday.
Mexico had offered to cut production by 100,000 barrels per day, but OPEC wanted more of a sacrifice. So the US agreed to fill in the gap and cut its production by 250,000 to 300,000 barrels per day, “which we’ve already done, by the way,” Trump said.
“US production has already been cut, because we’re a market-driven economy, and oil is very market-driven,” he said. “They’ve been cutting oil all over the place.”
The US is already on track for a production decline of 2 million to 3 million barrels per day, said Dan Brouillette, secretary of the US Energy Department.
Altogether, the agreements could pave the way for cuts that experts estimate could reach 15 million barrels a day in all — about 15 per cent of world production. Such a move would be unprecedented both in its size and the number of participating countries, many of whom have long been bitter rivals in the energy industry.
The price of crude is down by over 50 per cent since the start of the year and while that helps consumers and energy-hungry businesses, it is below the cost of production for many countries and companies. That has strained the budgets of oil-producing nations, many of which are developing economies, and it has pushed private companies in the US towards bankruptcy.
Analysts warn even these proposed cuts may not be enough to offset the loss in demand over the longer term, as the coronavirus pandemic has decimated demand for energy around the world.