Opec agrees to cut 1.5 million barrels per day of oil to boost prices

The next official meeting of Opec's joint ministerial monitoring committee is scheduled for July 15.. REUTERS

The Organisation of Petroleum Exporting Countries on Thursday agreed to cut oil output by an additional 1.5 million barrels per day until the end of the year to support oil prices and offset the huge demand hit from the spread of the coronovirus epidemic.

Opec countries have proposed to cut a further 1mbpd and is seeking cuts of 500,000bpd from non-Opec members of the wider Opec+ alliance, a statement issued by Opec said.

“The Covid-19 outbreak has had a major adverse impact on global economic and oil demand forecasts in 2020, particularly for the first and second quarters,” Opec said.

“Global oil demand growth in 2020 is now forecast to be 0.48mbpd, down from 1.1mbpd in December 2019. Moreover, the unprecedented situation, and the ever-shifting market dynamics, means risks are skewed to the downside,” it added.

The decision was taken after an extraordinary meeting of Opec member countries in Vienna. A further ministerial meeting with members of the wider Opec+ alliance is set to take place on Friday.

Opec+, which also includes non-members led by Russia, has been cutting back 1.7mbpd from the beginning of January. The group decided to extend the current deal until the end of the year.

Brent, the international benchmark, was trading at $50.78 per barrel, down 0.68 per cent at 5:43pm UAE time. US crude West Texas Intermediate was down 0.47 per cent at $46.56 per barrel.

London-based consultancy Energy Aspects said in a note that “oil prices may not leap” even if Opec+ agrees to implement deeper production cuts for the second quarter due to the weak sentiment currently prevailing in the markets.

“However, such cuts should limit second quarter stockbuilds so that inventories are at a level that can be easily eroded over the summer, in turn enabling prices to rise in the third quarter of this year,” it said.

“While Russia may be less price-sensitive at $50 Brent than Opec, Russia is not leaving the deal,” it added. Russia earlier this week hinted it is comfortable with the current level of oil prices.

The coronavirus, which started in the Chinese city of Wuhan, has spread to more than 70 countries, has killed more than 3,200 people and infected more than 94,00 people.

Earlier this week, the Organisation for Economic Co-operation and Development, revised down its estimate of global GDP growth by half a percentage point to 2.4 per cent in 2020.