Saudi Arabia’s energy ministry has reportedly directed Aramco, the national oil company, to further cut its crude oil production for June by an extra 1 million barrels per day voluntarily. The latest directive for output cut will be on top of the recently committed reduction by the Saudi Kingdom under the OPEC+ deal.
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.
OPEC, in its monthly market report, had said that the ramifications of COVID-19 response resulted in “unprecedented” worldwide oil demand shock. 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
A ministry official has reportedly said that the additional cut is aimed at encouraging OPEC+ participants to comply with the production cuts and provide additional voluntary cuts. The official added that the additional cut will take the overall reduction by around 4.8 million barrels per day, from the April production level.
(With agency inputs | Image : AP)