OPEC and oil nations agree to cut record oil production amid coronavirus pandemic

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OPEC and its Russian-led allies agreed on Sunday to cut oil production by a record amount – about 10% of the world supply – to support oil prices amid the coronavirus pandemic, and sources said that actual reductions could reach up to 20%.

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Measures to slow the spread of the coronavirus have destroyed demand for fuel and depressed oil prices, straining the budgets of oil producers and hammering the US shale industry, which is more vulnerable to low prices due to its higher costs.

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The group, known as OPEC +, said it had agreed to cut production by 9.7 million barrels per day (b / d) for May-June, after four days of marathon talks and following pressure from US President Donald Trump to stop the price drop.

As part of the largest decline in oil production ever, exceeding the reductions approved during the 2008 financial crisis four times, countries will continue to gradually reduce existing production restrictions for two years until April 2022.










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“The big oil deal with OPEC + is over. This will save hundreds of thousands of energy jobs in the United States, “Trump wrote on Twitter, thanking Russian President Vladimir Putin and Saudi King Salman for advancing the deal.

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“I just talked to them … a lot for everyone,” said Trump.

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OPEC + has said that producers outside the group, such as the United States, Canada, Brazil and Norway, will further reduce 5 percent or 5 million bpd.

Three OPEC + sources said that actual reductions in oil production could reach nearly 20 million b / d if contributions from non-members, larger voluntary reductions from some OPEC + members and purchases of strategic stocks were taken into account.

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Gulf members of the Organization of the Petroleum Exporting Countries would cut production further than expected, OPEC + sources said.

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The sources said the International Energy Agency (IEA) would announce its members’ purchases of stocks on Monday. The IEA did not immediately respond to a request for comment.

Canada officially welcomed the deal on Sunday, saying that Ottawa is committed to price certainty and economic stability.

” Its good. We welcome any news that brings stability to world oil markets, “said Minister of Natural Resources Seamus O’Regan in an emailed statement to Reuters.

Severe distress

Trump had threatened OPEC leader Saudi Arabia with oil tariffs and other measures if he did not address the problem of oversupply in the market because low prices put the US oil industry , the largest in the world, in great distress.

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Canada and Norway have indicated their willingness to cut back, and the United States, where legislation makes it difficult to work in tandem with cartels such as OPEC, said production will fall by itself this year in because of the low prices.

The OPEC + deal had been delayed since Thursday, however, after Mexico, worried about derailing its stimulus packages from the heavily indebted state oil company Pemex, backed down from the production cuts it had been asked to do.










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Mexican President Andres Manuel Lopez Obrador said Friday that Trump had offered to make additional cuts to the United States on his behalf, an unusual offer from a Trump who long denounced OPEC.

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Trump said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not explain how it would work.

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A previous OPEC + agreement to cut production this year collapsed due to a dispute between Russia and Saudi Arabia, sparking a price war that led to a supply flood as well fuel demand has been crushed by the coronavirus pandemic.










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Global demand for oil is estimated to have declined by a third, as more than 3 billion people are locked into their homes due to the epidemic.

A 10-15% drop in supply may not be enough to stop the prices falling, according to banks Goldman Sachs and UBS last week, claiming that Brent prices would drop to US $ 20 per barrel from 32 US $ currently and US $ 70 at the start of the year.



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