A historic deal to cut oil output was struck over the weekend, with OPEC+ agreeing to a reduction of 9.7 million barrels per day equating to nearly 10% of global supply and more than twice the adjustment made during the 2008 financial crisis. Furthermore, non OPEC+ G-20 nations (including the U.S. and Canada) are being called upon to contribute additional reductions of around 5%.
Ordinarily one would expect a huge increase in the oil price upon such a significant cut but it has not transpired because demand destruction is much greater at 20% to 30%. So the oil price will remain under pressure unless further cuts are made or containment measures are lifted and domestic mobility, aviation and commercial transport pick up the slack. The reductions in supply do not start until May and then will be phased through June, during which time oil storage facilities (including shipping containers) will near capacity.
Nevertheless, at a political level, it seems the agreement has lightened some international tensions. The deal appears to have been brokered by Trump, Putin and Prince Mohammed bin Salman of Saudi Arabia, a previously unseen co-operation. The arrangement sees Russia cut production by 25% despite rhetoric a couple of months ago about its attempts to undermine the US shale industry. Trump has ‘tweeted’ thanks to Russia and Saudi Arabia for the US job saving deal. For the Kremlin, the concession builds bridges with the US following 6 years of sanctions and allegations of election meddling, and places it as a critical partner of the US through its alignment of interests over the oil price. The news also comes at a time Russia’s deputy foreign minister proposed co-operation in space, and talks begin on renewing agreements on the holding of nuclear warheads.