03/03/2024 6:54 PM

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OPEC and allies finalize record oil production cut after days of discussion

An OPEC sign hangs outside the OPEC Secretariat in Vienna, Austria, on Nov. 29, 2017.

Akos Stiller | Bloomberg | Getty Images

OPEC and its oil producing allies on Sunday finalized a historic agreement to cut production by 9.7 million barrels per day, following multiple days of discussions and back-and-forth between the world’s largest energy producers.

Sunday’s emergency meeting — the second in four days — came as oil-producing nations scrambled to reach an agreement in an effort to prop up falling prices as the coronavirus outbreak continues to hammer demand.

The group, known as OPEC+, initially proposed cutting production by 10 million barrels per day — amounting to some 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of global oil supply — on Thursday, but Mexico opposed the amount it was being asked to cut, holding up any final deal. 

Talks continued on Friday when energy ministers from the Group of 20 major economies met, and while all agreed that stabilization in the market is needed, the group stopped short of discussing specific production numbers.

Under OPEC+’s new agreement, Mexico will cut 100,000 barrels per day, instead of the 400,000 barrels per day it had initially been asked to cut.

The 9.7 million barrels per day cut will begin on May 1, and will extend through the end of June.

On Friday President Donald Trump said the U.S. would cut production in an effort to get Mexico “over the barrel.”

At a White House press briefing, Trump said he spoke to Mexico’s President Andrés Manuel López Obrador and had agreed to “pick up some of the slack” by cutting production on behalf of Mexico. He did not elaborate on how the cuts would be enacted, and said Mexico would reimburse the U.S. at a later date.

Trump has sought to ease relations between Saudi Arabia and Russia since a price war broke out between the two powerhouse producers following OPEC+’s meeting on March 6. Thursday’s OPEC+ meeting was scheduled after Trump said he spoke to Putin and Saudi Crown Prince Mohammed bin Salman, and expected them to announce a deal.

OPEC+ is hoping that nations outside of the group, including the U.S., Canada and Norway, will also cut back on production in an effort to shore up prices.

While Trump has stopped short of saying the U.S. would scale back production, he has noted that market forces would naturally curb output.

Despite the record size of the cut, some fear that it’s still not large enough to combat the drop-off in demand. On Thursday West Texas Intermediate crude dropped more than 9{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}. The market was closed on Friday.

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