OPEC+ agreement on oil production cuts may restore oil prices

The OPEC + has agreed on unprecedented cuts in oil production and according to the energy minister of the United Arab Emirates, Suhail Mohammed Faraj Al Mazroui, this may restore the prices.

The coronavirus crisis cut demand dramatically in March and April sinking crude oil prices. Brent international crude prices never went negative but West Texas Intermediate (WTI) crude benchmark plummeted to minus $40.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, agreed on bringing down production in order to balance global oil markets. It could take a year or two for that as the cuts exhaust the excess from the market, said Mazrouei during the call hosted by the Atlantic Council.

Mazrouei said:

We have seen very good signs of demand picking up. We have seen numbers of driving vehicles are picking up.

The oil prices will still largely depend on whether there is a second wave of the coronavirus pandemic and economies are forces to shut down again, he added.


Mazrouei continued:

Suhail bin Mohammed Faraj Faris Al Mazrouei

Suhail Mohammed Faraj Al Mazroui

Are we going to have a second wave or not? I hope not. I hope we’re not going to limit travel and we will go back to at least a consumption level that is reasonable. Now we are back to the consumption level of 2013, believe it or not.

Mazrouei did not define what “normal” prices were but benchmark Brent crude averaged about $64 a barrel for last year.

The OPEC+ coalition, lead by Saudi Arabia and Russia, agreed on cuts in April to save oil prices from the impact of the crisis and extended the cuts through July. The alliance set a cut output by 9.7 million barrels per day, which is 10% of pre-pandemic demand, to the end of July.

Mazrouei said:

In previous deals we had countries cheat because there was no rule. Now there is a rule, so countries are coming and stating their commitments.

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