Oil industry operators who have suffered in the past few weeks from dropping crude prices have welcomed an agreement reached over the weekend between the Organization of Petroleum Exporting Countries (OPEC) and other major oil producing countries to cut output, saying the deal would bolster stability in the market as the world continues to battle the coronavirus pandemic.
The rehabilitation process for the world’s largest economy, however, could be a difficult one, instead of a “V-shaped” model, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Sunday.
“This could be a long, hard road that we have ahead of us until we get to either an effective therapy or a vaccine. It’s hard for me to see a V-shaped recovery under that scenario,” he told CBS’s “Face the Nation.”
As more countries implement restrictive measures and shut down large swaths of the economy in order to fight the COVID-19 pandemic, oil consumption has dramatically decreased, and in turn oil prices, also hit by a price war between Saudi Arabia and Russia, have fallen by more than 50 percent since early this year.
Energy ministers of the Group of 20 (G20) nations agreed on Friday to ensure the energy market’s stability, as well as affordability and security in the face of the COVID-19 pandemic, but remained quiet on the issue of oil production reduction.
Finally, after four days of talks, the OPEC+ group of nations met on Sunday and struck the deal of an output cut by 9.7 million barrels per day (bpd) for May and June, around 10 percent of global supply, to support oil prices amid the pandemic.
During a phone conversation on Sunday between U.S. president Donald Trump, Russian President Vladimir Putin, and Saudi King Salman bin Abdulaziz Al Saud, “the leaders supported the agreement reached by the OPEC+ on the phased voluntary reduction of oil production in order to stabilize global markets and ensure the sustainability of the global economy as a whole,” the Russian president’s press office said in a statement.
According to an OPEC statement on the deal, from July through the end of 2020, the cut will decrease to 7.7 million bpd, and will then be followed by an adjustment of 5.8 million bpd for another 16 months till the end of April 2022.
Trump tweeted his delight and congratulations on Sunday, calling it a “great deal for all,” which “will save hundreds of thousands of energy jobs in the United States.”
“This is a significant agreement that will foster increased stability in energy markets to the benefit of both American energy consumers and producers,” said American Petroleum Institute President and CEO Mike Sommers, adding “significant challenges remain in the weeks and months ahead” for the energy industry.
The production adjustments are historic, said OPEC Secretary-General Mohammad Barkindo. “We are witnessing today the triumph of international cooperation and multilateralism which are the core of OPEC values.”