The Organization of the Petroleum Exporting Countries (OPEC) said that the ramifications of COVID-19 response resulted in “unprecedented” worldwide oil demand shock. In its monthly market report, the oil cartel said that the demand shock led to massive sell-offs in the global oil markets amid a significant crude surplus.
“The oil market is currently undergoing historic shock that is abrupt, extreme and at global scale,” said the group of producer nations.
According to the report, the world oil demand growth forecast for 2020 has been revised lower by 6.9 million barrel per day to a historical drop of around 6.8 million barrel per day. Similarly, the non-OPEC oil supply is forecast to decline by 1.50 million barrel per day, a downward revision of 3.26 million barrel per day from the previous projection.
Earlier on April 12, OPEC and allies agreed to a historic 9.7 million barrel per day production cut to contribute to the efforts aimed at stabilizing the market. The deal was agreed by all participants after there was a deadlock because of Mexico not giving consent to an earlier deal which proposed a 10 million barrel per day.
As per the agreement, 9.7 million barrel per day production cut will come into effect from May 1 and will continue for an initial period of two months ending June 30. For the next six months, the total adjustment agreed will be 7.7 million barrel per day output cut which will be followed by a 5.8 million barrel per day production cut for a period of 16 months.
Oil production of October 2018 will be the baseline for the calculation of the adjustments except for Russia and Saudi Arabia which will follow the same baseline level of 11 million barrel per day. The agreement’s validity will remain until April 30, 2022, but the possible extension will be reviewed in December 2021.
(Image source: AP)