Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries participating in the Declaration of Cooperation have resolved to temporarily cut the overall production of crude oil by 10.0mb/d starting from 1st May 2020 for an initial period of two months. According to a statement released by the organization, for the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 8.0 mb/d. It will be followed by a 6.0 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022.
The statement further added that, the baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022; however, the extension of this agreement will be reviewed during December 2021.
Also Read: Algeria advocates for immediate oil production reduction
The need for oil production cut
This development comes after Algeria, which chairs the presidency of the OPEC Conference, urged oil producing countries to take advantage of the meeting and agree on a global, massive and immediate production cut because the oil market is facing an unprecedented decline of demand due to the impact of the COVID-19 pandemic on world economic activity and to the containment measures taken by many countries.
According to Algeria, the market is facing a large increase in world oil supply, due to the decision by some countries to produce at maximum capacity. This double shock has led to a drastic drop in oil prices, which will be further accentuated in a few weeks, when global oil storage capacity will reach saturation, resulting in a lasting dislocation of the oil industry.
