The world’s top oil producers pulled off a historic deal to cut global crude output and put an end to a no-win price war. After a week-long marathon of bilateral talks with government ministers from around the world, an agreement finally emerged to tackle the impact of the global pandemic on demand.
The talks had almost stalled last week when Mexico broke the ranks, but came around, after a weekend of urgent diplomacy. As part of the deal, Opec+ will cut 9.7 million barrels a day — just below the initial plan of 10 million. This comprises around 10 per cent of the global supply. Mexico will only be required to cut 100,000 barrels — less than its pro-rated share.
With the virtual paralysis of air and ground travel, demand for gasoline is collapsing and crude prices have plunged to 18-year lows. The question now for the oil market is whether the cuts will be enough to throw a floor under prices as demand for energy collapses. With countries around the world extending their lockdowns, the death toll mounting in New York, and unemployment exploding in the US, the oil market is more worried about consumption than supply.