The oil price war between Russia and Saudi Arabia is over.
The world’s top oil producers have announced a historic deal to cut global petroleum output by nearly a 10th, effectively ending a price war between Saudi Arabia and Russia that had sent global oil prices plummeting in recent weeks. The Organization of the Petroleum Exporting Countries and its allies (known as OPEC+) will cut 9.7 million barrels of oil per day – just below the initial proposal of 10 million.
A week-long marathon of bilateral calls and ministerial video conferences brought the OPEC+ alliance and the Group of 20 nations together for an unprecedented agreement. However, the deal was not enough to boost oil prices as traders calculated that the cut to supply would barely dent the massive glut of oil that keeps growing as the virus shuts down the global economy. Brent crude oil traded down 0.2% in London.
The agreement ends a tumultuous month when Brent crude oil, the global benchmark, plunged to its lowest level in nearly two decades, falling toward $20 U.S. a barrel. Earlier this year, it traded above $70 U.S. a barrel. OPEC+ ministers had to race onto a video conference call on Easter Sunday, less than four hours before the oil market reopened, to finalize and close the deal.
The production restraints are set to last for about two years, though not at the same level as the initial two months. Copying the model adopted by central banks to taper off their bond buying, OPEC will also reduce the size of the cuts over time. After June, the 10-million-barrel cut will be tapered to 7.6 million a day until the end of the year, and then to 5.6 million through 2021 until April 2022.
The deal doesn’t take effect until May 1, leaving OPEC+ countries, which have significantly increased production over the last month, able to continue flooding the market for another three weeks.
