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June 4, 2020updated 10 May 2021 3:51pm

Will production cut decision by OPEC and allies favour oil prices?

Oil producers led by the Organization of the Petroleum Exporting Countries (OPEC) and allies decided to cut production due to fall in demand and price.

By Praveen Duddu

Oil producers led by the Organization of the Petroleum Exporting Countries (OPEC) and allies decided to cut production due to fall in demand and price. Without the production cut, oil prices were expected to fall further and storage facilities to fill up.

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Offshore Technology has conducted a poll to assess the impact of the OPEC agreement and production cut on oil prices.

Analysis of the results shows that the OPEC agreement and production cut will partially support the oil prices, as opined by a majority 54% of the poll respondents, while 46% did not feel that the production cut will support oil prices.

OPEC production cut supports oil prices

The analysis is based on 369 responses received between 01 May and 01 June.

Impact of the production cut decision on oil prices

In the single biggest output cut in history, OPEC and its production allies reached an agreement to cut production by 9.7 million barrels per day (Mbpd), in April 2020.

The agreement came into effect in May and is expected to be extended through June. The production cut is expected to be gradually scaled back to 7.7Mbpd from July through December.

Although the price cut was welcomed by many, experts feel that it may not be enough to deal with the slump in demand. OPEC and allies want to continue the production cut beyond June and expected to take a decision at their next meeting scheduled in June, according to Reuters.

Saudi Arabia has also announced a voluntary production cut of one million bpd from June along with Gulf OPEC producers including United Arab Emirates (UAE) and Kuwait, which have announced an 180,000bpd production cut.

Production cuts and easing of lockdown restrictions in certain countries are expected to ease pressure on storage capacities and revive oil prices, according to Reuters.

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COVID-19 has already affected our lives forever. The way we work, shop, eat, seek medical advice, and socialize will all be different in the future. Quite how different remains to be seen, but all industries must plan for multiple eventualities. Are you interested in actionable insights on the business challenges induced by the pandemic? GlobalData's cross-sector report analyzes the significance of this major disruptive theme across industry verticals. It provides side-by-side research of alternative datasets to present you with unique quantitative analysis of the effects of COVID-19 and how these differ across sectors. Additionally, it offers qualitative analysis of each sector and analyzes COVID-19’s impact on leading companies. Whatever your company’s imminent strategic plans, the long-lasting impact of COVID-19 must not be overlooked. Find out how to futureproof your business operations – download our report today.
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