OPEC reaches historic agreement to cut oil production, price war end

The world ’s largest oil producers have reached a historic agreement to reduce production, which put an end to the oil price war, which has serious consequences.

After a week of bilateral talks and a four-day video conference with the world's energy ministers, an agreement to deal with the impact of oil demand caused by the new crown epidemic was finally announced. Due to opposition from Mexico, the negotiations were nearly broken. But after an emergency diplomatic mediation over the weekend, the negotiations finally returned to the right track.

OPEC + said that the draft statement expects the global crude oil production cuts to take effect from May 1, and the 2020 crude oil production cut will exceed 20 million barrels per day.

Among them, OPEC + will reduce crude oil output by 9.7 million barrels per day, which is slightly lower than the original planned reduction of 10 million barrels per day. It seems that Mexico has won a diplomatic victory and only needs to cut production by 100,000 barrels per day, which is lower than the scale that should be cut proportionally. Mexico also said that it will reconsider the membership of OPEC after two months of production cuts.

OPEC + also hopes that the G-20 oil-producing countries will implement another 5 million barrels of production reduction per day. At present, it is only determined that the United States, Brazil and Canada will jointly reduce production by 3.7 million barrels per day. The United States will also reduce production for Mexico by 300,000 barrels per day. OPEC + is waiting for more production cuts in G20 countries.

Russia ’s Minister of Energy Novak said that Russia ’s average daily output will be reduced by 2.5 million barrels in May and June, with a baseline of 11 million barrels.

For the oil market, the question now is whether such a reduction in production is sufficient to support prices at a time when demand for oil has plummeted due to the new crown epidemic. According to sources, based on current crude oil production levels, the crude oil market will be reduced by approximately 19 million barrels of crude oil on May 1.

Subsequently, the Kuwaiti oil chief said on Twitter that an agreement was reached on global crude oil production cuts, and OPEC + will cut crude oil production by nearly 10 million barrels per day from May 1.

Previously, the OPEC + video conference that was supposed to start at 00:00 on April 13th, Beijing time has now been delayed by more than an hour. People familiar with the matter said that the Mexican energy minister has not joined the video conference.

Shortly after the start of the meeting, the market heard that OPEC + reached a production reduction agreement.

Before the meeting started, market rumors said that OPEC + today's meeting may discuss two issues: 1. Accept the compromise proposal proposed by Trump (this proposal was initially rejected by Saudi Arabia); 2. Calculate the reduction in output based on Mexico ’s exports rather than output. Two possible scenarios of OPEC + meeting results tonight, 1. Mexico withdraws from OPEC + alliance; 2. Saudi Arabia and Mexico have adjusted their flexibility in reducing production.