FX.co ★ OPEC+ deal comes into force on May 1st

At the beginning of the last spring month, the new OPEC+ pact came into force. The OPEC members and independent oil producers agreed to cut output in order to stabilize global market.

The new deal came into effect on May 1st, 2020. The countries decided to tighten oil production by 9.7 million barrels a day from baselines mostly reflecting October 2018 production. However, Russia and Saudi Arabia will start the output reduction from 11 million barrels a day.

OPEC+ has pledged cuts of 9.7 million barrels a day in May and June. From July to the end of the year, reductions are planned to hit 7.7 million barrels a day. Through May 2020, output cut will hardly exceed 5.7 million barrels a day. At the same time, in May, Russia should produce around 8.5 barrels a day.

The decision to cut oil output was made by the OPEC members and independent oil producers on April 9, 2020. The key aim was to stabilize the hydrocarbon market and lessen impact of the COVID-19 pandemic.

The idea was proposed by the US that called on the G20 countries and oil producers to reduce oil output.

According to the agreement, all Russian oil companies will have to lower their production. Alexander Novak, Minister of Energy for the Russian Federation, said that quota reduction had been already distributed between those companies. Calculations based on the data for February 2020 showed that Russia would approximately cut its oil output by 2 million barrels a day or by 19% compared to February.

Alexander Novak supposes that in May, oil output in other countries may drop by another 10 million barrels a day. He explained it by various economic reasons and poor market conditions. He also believes that amid such low prices those countries which produce 46% of all oil amount will have to cut output by 10 million barrels a day. Other producers, whose output contributes to 53% of the world’s oil reserves, will have to do the same.