By Adedapo Adesanya
Member nations that make up the G20 have supported the decision of the Organisation of the Petroleum Exporting Countries and allies, OPEC+ to reduce global oil supply and restore stability to the market.
An agreement, reached on Friday, April 10 during a virtual meeting of the G20 energy ministers, will see the members coordinate efforts to reduce supply to the decline faced by the global oil sector due to the coronavirus pandemic, as well as create a task force to monitor actions moving forward.
A statement released by the G20, however, does not include a specific amount that will be cut from daily production as OPEC+ on Thursday had said they would push G20 members to cut an additional 5 million barrels of oil per day.
The communique from the G20 meeting said members would “commit to take all the necessary and immediate measures to ensure energy market stability”.
The OPEC+ meeting chaired by de-facto leader, Saudi Arabia and Russia had struck a deal to cut 10 million barrels a day from global supply, the biggest supply reduction ever made. The deal will see Russia and Saudi Arabia carrying out majority of the cut of 2.5 million barrels per day each.
After this initial two-month period, running from May to June, the overall production cut from OPEC+ will lower to 8 million barrels per day from July to December and then lower to 6 million barrels per day from January 2021 to April 2022.
However, confirmation of the deal was delayed by Mexico’s refusal to make large cuts to its own oil production which kicks against Saudi Arabia’s push to have all countries in the OPEC+ alliance cut an equal share.
According to the production cut agreed on Thursday, Nigeria and its OPEC counterparts alongside Russia and other members including Mexico will cut 400,000 barrels per day from May to June.
However, Mexico refused as the country is pushing its national oil company, Pemex, to revive the country’s economy and energy sector.
The OPEC+ group might have agreed to eliminate 10 million barrels of crude per day for an initial two-month period to save a glutted oil market, but there is still the problem of oversupply, which despite the reduction, will persist as demand has fallen due to travel restrictions caused by the coronavirus pandemic.
Due to the Easter holidays on Friday, the oil market saw no trading but ended the week in the negative territory with Brent crude selling around $31 per barrel due to the possibility of oversupply, the deal itself, and uncertainties surrounding demand.
Maybe when the market reopens on Tuesday, there might a positive reaction to the latest development as traders will watch keenly to how the market responds.
The OPEC+ group will meet again on June 10 to discuss further action, if things don’t go as expected.
