A historic production cut agreement between OPEC and its allies, known as OPEC+, hit a roadblock after Mexico refused to agree to its share of the cuts after a marathon meeting between the oil-producing nations that lasted more than nine hours.
The other members of OPEC+, led by Saudi Arabia and Russia, earlier in the day agreed to cuts that would take 10 million barrels per day offline as the coronavirus pandemic saps demand for crude.
OPEC said in a statement that the initial 10 million barrels per day cut would last in May and June, before tapering to 8 million barrels per day for the rest of the year. Beginning in January 2021, the cuts would decrease to 6 million barrels per day, which would continue through April 2022, according to the statement.
The market has been underwhelmed by the proposed 10m/bd production cut, perhaps because of early expectations of a massive 20m/bd reduction,” said Helima Croft, RBC’s global head of commodities research. “However we contend that it is crucial to turn off the tap off the tap in the midst of colossal demand crash and bring the price war to a swift conclusion,” she added.
“We’re optimistic that they’ll reach an agreement between the Saudis and Russians in an effort to stabilize the markets,” U.S. Energy Secretary Dan Brouillette said Thursday on CNBC’s “Squawk Box” before the OPEC+ meeting kicked off.
“I think they can easily get to 10 million, perhaps even higher, and certainly higher if you include the other nations who produce oil, nations like Canada and Brazil and others. Easily, easily done,” he added.
When it comes to U.S. energy companies, Trump has commented that market forces will prevail, and on Wednesday said that producers have “already cut way back.” Brouillette echoed this on Thursday, telling CNBC that the “demand downturn has led to production cuts in the United States of about 2 million barrels per day thought the reminder of 2020.”