(Reuters) – Worldwide oil producers, led by OPEC, are expected to cut production by roughly 20 million barrels per day (bpd), roughly equal to 20% of global daily supply, through a combination of mandated cuts, production falls due to poor economics, and purchases into oil reserves.
FILE PHOTO: The logo of the Organization of the Petroleoum Exporting Countries (OPEC) is seen outside of OPEC’s headquarters in Vienna, Austria April 9, 2020. REUTERS/Leonhard Foeger
WHAT IS OPEC AND WHAT IS OPEC+?
The Organization of the Petroleum Exporting Countries, or OPEC, is a group of many of the world’s largest oil producers, who set production goals to try to maintain prices at a stable level. The countries include Saudi Arabia, Iraq and United Arab Emirates, and together account for about one-third of worldwide oil supply.
OPEC+ includes those countries as well as several other oil producers, most notably Russia, who came together in late 2016 to agree to reduce output to prevent prices from falling dramatically as U.S. shale oil production grew to record highs, eventually boosting the United States to top global producer. That deal, which was then was the deepest cuts for the group amounting to 1.7 million bpd, ended in March.
WHAT HAPPENED IN MARCH?
Saudi Arabia and Russia, the two largest producers in this extended group, were unable to agree to curb output as the coronavirus pandemic worsened. Instead, they canceled the deal, and Saudi Arabia increased daily output to roughly 12 million bpd, boosting exports and lowering prices. That caused prices to fall as low as $23 per barrel for Brent crude LCOc1, the international benchmark.
WHAT ARE THEY DOING NOW?
These nations, at the urging of U.S. President Donald Trump, agreed this past week to additional cuts. The OPEC+ group will cut output in May and June by nearly 10 million bpd. The reductions gradually are lowered, first to 8 million bpd, then 6 million bpd.
WHO ELSE IS CUTTING OUTPUT?
Several other nations that generally do not manage national production have either to output cuts or have said poor economics are forcing production declines. Brazil’s state oil company Petrobras is cutting by 200,000 bpd. Canada is not mandating cuts, but said poor pricing is causing producers to shut production. The United States expects output to fall by roughly 2 million bpd by the year-end, but it is not mandating production cuts.
HOW ELSE IS INVENTORY BEING REDUCED?
Several major oil consuming nations have said they will start buying oil for their strategic reserves, helping take some supply off the market.
WHAT IS THE OUTLOOK FOR WORLDWIDE SUPPLY?
Most analysts believe that without production cuts, oil prices would fall further and storage would fill in a matter of weeks. Under this deal, that process is still likely to happen, but more slowly.
Reporting By David Gaffen; Editing by Marguerita Choy