(VOVWORLD) - The Organization of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) have agreed to temporarily cut production in order to boost oil prices.
Members of OPEC and their allies announced Sunday that they have agreed to cut production in May and June by 9.7 million barrels a day, about 10% of the world's normal supply of oil,in order to buoy oil prices and stabilize the market. It’s the deepest cut ever agreed by the world's oil producers. The deal has temporarily ended the oil price war between Russia and Saudi Arabia.
The global oil market has seen some positive responses to themove, but with global demand for oil depressed by the Covid-19 pandemic,oil prices will not rise dramatically.
Commitments to slash production and positive responses from the global oil market
After cutting production by 9.7 million barrels a day in May and June, OPEC+ will steadily ramp up production until the agreement expires in April 2022. The group has urged other oil producers like the US, Canada, Brazil, and Norway, to cut total production a further 5%, equivalent to 5 million barrels a day.
The Saudi energy minister has said that effective oil supply cuts by OPEC+ will amount to 12.5 million barrels per day, because of higher output in April from Saudi Arabia, the United Arab Emirates and Kuwait. Saudi Arabia’s Energy Minister Arabia Abdulaziz bin Salman said Saudi Arabiapumped 12.3 million barrels per day in April, which is higher than its agreed reference level of 11 million barrels per day under the new pact, meaning the effective cut by Saudi Arabia is about 3.8 million barrels per day.
On Monday US West Texas Intermediate crude rose6.1% to 24.15 USD per barrel, while the Brent crude price increased 3.9% to 32.71 USD per barrel. Experts say oil prices will continue to increase in the coming days.
Crude oil unable to return to high prices
But the experts say crude oil pricesare unlikely to rebound above 50USD per barrel. The main reason is that, with much of the world in lockdown as the coronavirus pandemic rages on, global oil demand has fallen by 30 million barrels a day, about 30% of the global supply. If OPEC+ cuts 15 million barrels a day, supply will still exceed demand. And part of the global oil supply comes from producers outside the OPEC+ agreement.