In anticipation of the impending recession of the world economy, Saudi Arabia and Russia have agreed to a significant oil production cut. The decrement, of 5 million barrels each per day, will persist over the next two years, until April 2022, to make up for an all-time-low demand dictated by the infamous COVID-19.
The decision came after much speculation, finalized during yesterday’s virtual meeting of the 23 OPEC+ members, concluding that the two major nations will both decrease production by 5 million barrels per day, while the remaining members decide on how to share the remaining production cuts. Today’s virtual G20 meeting will be answer the highly anticipated, and impending question of whether the United States or Canada will join in on the efforts.
As coronavirus dilates, oil demand deflates
However important the aforementioned OPEC production cuts may be, many experts argue they remain insufficient to make up for the unprecedented drop in oil demand, due to worldwide lockdowns.
The arduous fight against the virus has grounded planes, parked vehicles and locked doors, massively curbing overall economic activity and, consequently, causing fuel demand to plunge everywhere, without exception, totaling to about 30 million bpd or 30% of global supplies.
“In a nutshell, the demand declines are going to be greater than the production declines,” Amrita Sen, chief oil analyst at Energy Aspects, a research firm told the New York Times.. She estimates that demand would be down 25 million barrels a day, or about one-quarter of normal consumption, in April.
Significant efforts unfold, yet pundits remains fearful
OPEC Secretary General Mohammad Barkindo admitted that that the oversupply of unsold oil is an increasing threat to his organization. “Our industry is hemorrhaging; no one has been able to stem the bleeding. It is imperative we take urgent action” he typed out, in the remarks posted to the institutions official website.