The Organization of Petroleum Exporting Countries (OPCE) has agreed to cut oil output by an extra 1.5 million barrels per day (bpd) in the second quarter of 2020 to support prices that have been hit by the Covid-19 outbreak. The oil demand outlook has been pummelled by governments’ steps to halt the spread of the virus, prompting OPEC to consider its deepest cut since the 2008 financial crisis. Demand growth forecasts in 2020 have been slashed as factories have been disrupted, people have been deterred from travelling and other business activity has slowed.
Saudi Arabia has been pushing OPEC and its allies, including Russia, for a big cut up to 1.5 million bpd for the second quarter of 2020 while extending existing cuts of 2.1 million bpd, which expire this month, to the end of 2020. But Riyadh, the biggest producer in the cartel, and other OPEC members have struggled to persuade Russia to support the move. Moscow has till now indicated it would back an extension but not a new cut. Russia, which has co-operated on output policy since 2016 in the informal group known as OPEC+, has in the past been hesitant during talks but signed up at the last minute.
Ministers from OPEC+ meet tomorrow in Vienna. “The coronavirus outbreak created an “unprecedented situation” with risks “skewed to the downside” and demanding action, OPEC said in a statement after its ministers met. It said ministers agreed to an extra supply cut of 1.5 million bpd until June, out of which non-OPEC states were expected to contribute 500,000 bpd. The group said this was in addition to extending existing supply curbs to the end of 2020. OPEC added that it would hold another ministerial meeting on June 9. The last time OPEC reduced supplies on such a scale was in 2008 when it cut production by 4.2 million bpd to address slower demand because of the global financial crisis.