Oil prices fall as Opec production cut deal hangs in balance
Oil prices have dropped sharply overnight despite a tentative agreement between oil cartel Opec and Russia to cut production by 10m barrels per day, roughly 20 per cent of their output.
Discussions will resume today, with the negotiations hinging on whether Mexico decides to join in with the cuts, which it has thus far balked at.
Saudi Arabia’s energy minister Prince Abdulaziz bin Salman told Reuters that the pact depended on Mexico’s agreement:
“I hope (Mexico) comes to see the benefit of this agreement not only for Mexico but for the whole world. This whole agreement is hinging on Mexico agreeing to it”.
Benchmark Brent crude dropped 4.1 per cent, falling back to $31.5 per barrel, while West Texas Intermediate shed 10 per cent of its previous gains to stand at $22.8.
It is understood that other producers, such as the United States and Brazil, are also expected to contribute cuts to the tune of 5m barrels per day to contribute to shoring up the markets.
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The combination of a plunge in demand caused by coronavirus and a price war between Russia and Saudi Arabia had led to a huge glut of oil, forcing prices down from $70 in January to just over $30 today.
When asked about the chance of other countries joining the cuts, bin Salman said: “They will do it in their own way, using their own approaches, and it is not our job to dictate to others what they could do based on their national circumstances”.
A Kremlin spokesperson said that Russian president Vladimir Putin, his US counterpart Donald Trump and Saudi Arabia’s king had been in discussion about the negotiations.
He said that the leaders had reaffirmed their intent to stabilise the global market.
A 15m barrel cut would already the previous largest production cut ever made, when the cartel slashed output by 2.2m barrels a day at the height of 2008’s financial crisis.
However there are fears that even cuts of this magnitude will not do enough to shore up markets, with estimates for the plunge of demand forecast for April alone between 25m and 30m barrels per day.
Oil ministers from the G20 countries will today join the meeting to discuss their contribution to the curbs.