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OPEC agrees to largest oil production cut since the global financial crisis

The organisation’s decision depends on approval by Russia

The Organisation of the Petroleum Exporting Countries (OPEC) has decided to limit oil production by to 1.5 million barrels per day. This is the largest cut since the global financial crisis of 2008.

Oil prices have plunged in the weeks preceding the 178th extraordinary meeting of the OPEC conference in Vienna.

The organisation's president Mohamed Arkab, who is also Algeria’s energy minister, recognised that: “The outbreak of Covid-19 has had a pronounced adverse impact on economic and oil demand forecasts in 2020.”

The number of confirmed Covid-19 cases is fast approaching 100,000, while confirmed deaths have now surpassed 3,200.

The OPEC meeting resolved to recommend to the group and its allies “a further adjustment of 1.5 million barrels per day until June 30, 2020,” and an extension of the existing 2.1 million bpd cuts until the end of the year.

The widespread quarantines and shutdown of workplaces throughout China have disrupted global supply chains and severely reduced the country’s demand for natural resources.

Brent crude has fallen more than 22.9 per cent since the start of 2020, while West Texas Intermediate crude has dropped 23.41 per cent.

Tensions ahead of Thursday’s meeting were fraught after it became clear that OPEC’s ally Russia was less desirous of further cuts than Saudi Arabia, the group's most influential member.

Ahead of the meeting, Russia’s president Vladimir Putin sought to play down the importance of oil in the Russian economy, stating: “We are gradually weaning off [oil], by the way. We are really moving away from it, because the share of non-oil and non-gas revenues is growing.”

With Russia’s finance minister Anton Siluanov stating that no agreement had yet been made it would seem that investors and those monitoring the oil price will have to wait for the results of OPEC+’s ministerial meeting on Friday.

With the Russian state only needing an oil price of around $40-45 per barrel to balance its books, compared to Saudi Arabia’s $80, it would appear that president Putin’s position is strong.

By mid-afternoon trading Brent Crude stands at $50.93 per barrel, down 0.39 per cent, while WTI Crude stands up 0.11 per cent at $46.83.

FURTHER READING: Covid-19 update: IMF makes $50bn available to fight the outbreak, while Flybe collapses

FURTHER READING: Oil output set to be slashed

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