OPEC Plus has finalised a deal with the world’s major oil producers that will see a 10% cut in output – the largest-ever reduction in production.
Prices for global benchmark Brent crude rose by 3.9% to $32.71 a barrel and US grade West Texas Intermediate went up 6.1% to $24.15 a barrel as a result of the end of the damaging price between Saudi Arabia and Russia.
Prior to the agreement, the market was flooded with oil even though demand was down due to the economic downturn caused by the coronavirus. Both factors combined had sent oil prices plummeting to their lowest levels for 18 years, at one stage to just $22.58 a barrel.
US President Donald Trump personally thanked the leaders of both countries, King Salman and Vladimir Putin, saying he believes will save “hundreds of thousands of energy jobs in the United States”.
A word of caution was struck by one analyst, however, who noted that the decline in oil demand is well ahead of the output cuts that have been agreed and that this will frustrate hopes of the price maintaining an upward momentum.
Further cuts may, therefore, be needed to bring supply and demand into equilibrium and make a lasting impression on the price.
OPEC consists of 13 nations, all of which have a significant chunk in the role of oil production in the world and influence on global oil prices.
According to a statement on OPEC’s website, its role is to “coordinate and unify the petroleum policies of its member countries and ensure the stabilisation of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry”.