OPEC+ approves biggest ever oil cut

OPEC, Russia and other oil producing nations agreed on Sunday to cut output by a record of about 10% of global supply to support oil prices amid the coronavirus pandemic. The group, known as OPEC+, agreed to reduce output by 9.7 million barrels per day (bpd) for May-June, after four days of marathon talks.

Two OPEC+ sources told Reuters the deal had been sealed in a video conference, and the agreement was confirmed in a statement from by Kazakhstan’s energy ministry. In the biggest oil output cut ever, the countries will keep gradually decreasing curbs on production in place for two years until April 2022.

Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the US shale industry, which is more vulnerable to low prices due to its higher costs. Trump had threatened OPEC leader Saudi Arabia with oil tariffs and other measures if it did not fix the market’s oversupply problem as low prices have put the U.S. oil industry, the world’s largest, in severe distress.

OPEC+ has said it wanted producers outside the group, such as the US, Canada, Brazil and Norway, to cut a further 5% or 5 million bpd. Canada and Norway had signalled willingness to cut and the US, where legislation makes it hard to act in tandem with cartels such as OPEC, said its output would fall steeply by itself this year due to low prices.

Global oil demand is estimated to have fallen by a third as more than 3 billion people are locked down in their homes due to the coronavirus outbreak. A 15% cut in supply might not be enough to stop the price decline, banks Goldman Sachs and UBS predicted last week, saying Brent prices would fall back to $20 per barrel from $32 at the moment and $70 at the start of the year.

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