New OPEC+ deal not to stop global oil demand from declining?
OPEC plans to include the declines by non-OPEC producers may not be enough to reassure traders that have tried to weigh the loss of up to 30% of global demand as economies have shut down to slow the spread of coronavirus, Financial Times writes.
Traders have said co-operation by producers removes the fear of a market in freefall but storage capacity could still become overwhelmed in the coming weeks, depending on how long lockdowns and other measures last.
Oil prices plunged 30% on March 9 after Russia refused to accept Saudi's proposal to reduce production amid coronavirus pandemic. In response, Riyadh decided to ramp up output and sell its oil at huge discounts. As a result, the oil market began to plummet.
After lengthy negotiations, the OPEC + member countries signed a new deal on April 12. They agreed to cut output by 9.7 million barrels daily. Russia and Saudi Arabia will cut their daily oil output by 2.5 million barrels each from the level of 11 million barrels.
Other nations will decrease production by 23% on the October 2018 level. Mexico, which refused to accept a quota of 400,000 barrels a day, will cut production by 100,000 barrels. The remaining 300,000 barrels will be compensated by the United States, which has committed to cut daily production by 250,000 barrels a day.