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

4 June 2020 (Last Updated June 9th, 2020 08:18)

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.

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. Without the production cut, oil prices were expected to fall further and storage facilities to fill up.

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.