OPEC+ Cuts – A Sigh Without Relief

Posted: April 10, 2020

Members of the group dubbed OPEC+ have (nearly) come to an agreement upon global production cuts, but the market has failed to respond. Does this spell disaster for the industry?


A seemingly reasonable year in oil and gas markets turned into a nightmare as prices plunged to eighteen year lows earlier this month as the ongoing coronavirus pandemic continues to obliterate demand and the fabled price war between Russia and Saudi Arabia flooded crude into an already oversupplied market. On Thursday, a meeting between the OPEC and non-OPEC oil producing countries (dubbed OPEC+) was held in what was coined the Most Important Oil Meeting In History. During the meeting, the countries “reaffirmed their continued commitment in the Declaration of Cooperation to achieve and sustain a stable oil market, the mutual interest of producing nations, the efficient, economic, and secure supply to consumers, and a fair return on invested capital” [1]. In other words, the goal of the meeting was simple: to bring stability to a volatile oil market by imposing global production cuts between participants in order to bring the supply problem under control. 


After a marathon nine hour video conference, the ongoing price war between superpowers Saudi Arabia and Russia came to an end and nearly all members participating in the OPEC+ meeting unanimously agreed to global production cuts. The only holdout, Mexico, delayed the agreement reached by OPEC+ to cut oil output by an unprecedented 10 million barrels per day from global production [2]. The tentative plan is to slash overall crude oil production by 10 million barrels per day in May and June 2020, 8 million barrels per day from July through the end of the year, and 6 million barrels per day beginning in January 2021 and extending through April 2022 [1]. The agreed upon adjustments represent a 23% cut across the board from an October 2018 oil production baseline for all participants except for “the Kingdom of Saudi Arabia and The Russian Federation” [1]. A 23% cut will also be imposed on the leaders of the meeting but from production levels of 11.0 mbpd. While the agreement will be valid until 30 April 2022, the extension of this agreement will be reviewed in December 2021 [3].  

The agreement that took shape was largely the result of bilateral talks between the Saudis and Russia and represented a major feat of petro-diplomacy. The unprecedented two-year duration of the proposed deal appeared to signal the group’s resolve to rein in production for as long as the coronavirus pandemic continues to hammer global demand for oil [4]. In addition to Mexico, Kazakhstan and Brunei had also held out against the proposed deal, but they later fell into line after Saudi Arabia threatened to stick with its recent policy of flooding the market with oil. Sources indicated that many OPEC members supported leaving Mexico – which is not an official OPEC member – out of the deal. However, Saudi Arabia insisted that Mexico participate in the cuts and according to an official report, “the above was agreed by all the OPEC and non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico” [1]. 

Mexico’s Resolve

Mexico’s refusal to participate is centered around the baseline for their cuts. Mexico believes their baseline should be at a higher level and as a result, they should only need to cut 0.1 mbpd as opposed to the proposed 0.4 mbpd [4]. In recent events, Mexico said it has reached an oil-production cut agreement with OPEC+ after an intervention from President Donald Trump resolved an overnight impasse [10].  Speaking at a press conference on Friday morning, Mexican President Andres Manuel Lopez Obrador said he and Trump reached an agreement on production cuts that was “more acceptable than the 400,000 barrel-a-day reduction proposed by OPEC+ on Thursday” [10]. Kremlin spokesman Dmitry Peskov told reporters that President Vladimir Putin considers the agreement to uphold the OPEC+ deal but it is unclear whether Saudi Arabian leaders have accepted the proposal. 

The resolve of all participating OPEC+ nations to bring balance to the market is evident. Many experts expected difficulties with contributors agreeing to cuts without the participation of the United States and while Washington’s refusal to engage in top-down, government-mandated production cuts looked like a potential deal-breaker, this was not the case. The full impact the OPEC+ meeting will have on the market won’t be determined until the G-20 energy ministers meet on Friday. Saudi Arabia is hosting the meeting to discuss getting the U.S. involved in a production cut, a Russian source told Reuters earlier this week [5]. It appears the meeting will be off to a solid start as the United States has agreed to come to the table to play ball. 

Action Without Relief 

Interestingly enough, WTI Prices jumped to $28.36 just before the meeting as rumors of a 20 mpbd cut were in the works, but fell to $22.76 by the end of the meeting with what many experts believe to be disappointing results [6].  It appears the market is finally aware of the pandemic’s ongoing demand destruction and realizes that while impressive, a 10 mbpd is a good start but will not be enough to combat the 20-30 mpbd oversupply seen worldwide. “Although 10 million bpd will help the market on the short term to not fill up storage, it is a disappointing development for many, who still realize the size of the oil oversupply,” said Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen [7]. Oil’s seemingly unstoppable collapse underscores just how dramatically demand has deteriorated as the virus ravages world economies and brings modern life to a standstill. More than two-thirds of the world’s population is on lockdown. People of the world are not driving, flying or otherwise burning fuel causing consumption to fall faster than anyone predicted with demand losses reaching 35 million barrels a day by some estimates. Against that backdrop, an agreement to eliminate 10% of global crude supply, while extraordinary, isn’t a panacea [8]. 

What This Means

“Covid-19 is an unseen beast that seems to be impacting everything in its path,” OPEC Secretary General Mohammad Barkindo said at the meeting. “For the oil market, it has completely up-ended market supply and demand fundamentals since we last met on 6 March” [7]. The stakes could not be higher: OPEC+’s ability to correct the worst market rout in nearly two decades could bend the fortunes of energy players across the globe, from petro-states and Big Oil to traders and oilfield workers [9]. Billions of dollars in spending and countless industry jobs are at risk as prices tumble, triggering shale bankruptcies and shutting oil fields all over the world. While progress was made Thursday, more work is to be done to save an industry on the brink of collapse. 

The decisions made during the OPEC+ meeting (and potentially during a G20 meeting in the future) will have ripples reaching industries far and wide but none are as potentially affected as the gas industry. With production curtailments aiding a global supply problem, associated gas production will continue to fall at even greater levels. The future remains unclear as the main issue plaguing the gas markets is the same as oil – global oversupply is forcing storage to capacity. When this happens, current prices will seem high by comparison. Unfortunately, once storage fills, both markets will see an unprecedented free fall with no floor for prices. 

Looking Ahead: G20 Meeting  

Luckily for the global oil and gas industry, production cuts proposed by OPEC+ are not contingent upon the participation of G20 members making cuts of their own, but it does set a standard. While their cuts are not contingent upon participation, sources tell Bloomberg OPEC+ expects cuts of 5 mpbd from G20 nations [3]. The G20 presidency said on Tuesday that the meeting would be held “to foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy.” [7]. These meetings appear to be a make-or-break moment for the industry. With storage brimming, further action must be taken with U.S. involvement seen as being a key. Volatility for the second half of 2020 has fallen sharply in recent days, indicating that the market has faith in these meetings restoring price stability and ensuring a prosperous future. 

Global cooperation will restore faith to an industry on the brink of collapse and it must before a cascading effect on the global economy occurs. Unlike his counterparts in Russia and Saudi Arabia, President Trump has much less control over cutting domestic production but it is still in his best interest to help solve the supply pandemic. In the United States, the President is concerned that sustained low prices will lead to bankruptcies and job losses that threaten the domestic economy. Such threats also endanger his tenure in office with re-elections just months away. In Russia, much of their focus has been on the biggest constitutional overhaul since the end of the Soviet Union which would allow Putin to extend his Presidency through 2036 [11]. A misstep in ensuring prosperity for an industry at the heart of their economy would ensure such constitutional changes would never leave the drawing board. Lastly, Saudi Arabia, whose government is the most acutely impacted by low prices as oil sales account for most of the kingdom’s revenue; is on the verge of panic. The dramatic decline in prices are hampering the prince’s plans to invest billions of dollars in infrastructure projects and diversify the kingdom’s economy [11]. The world faces challenging days in the months ahead as we hold our breath to see the outcome of these industry changing meetings. While the world struggles to find a solution to this ongoing dilemma, there appears to be a renowned consensus: the world cannot afford to lose the energy industry or the security it brings. 


[1] https://www.opec.org/opec_web/en/press_room/5882.htm 

[2] https://uk.reuters.com/article/uk-global-oil-mexico-kuwait/mexico-delays-oil-output-deal-reached-by-opec-kuwait-oil-minister-idUKKCN21S06R

[3] https://www.marketwatch.com/story/opec-deal-to-curb-oil-production-held-up-by-mexico-report-2020-04-09

[4] http://www.energyintel.com/pages/eig_article.aspx?DocID=1069288&utm_campaign=top-story&utm_medium=site&utm_source=1&utm_content=Mexico+Holds+Up+Deal+on+Oil+Cuts-1069288&ts=1

[5] https://www.investors.com/news/oil-prices-opec-meeting-russia-saudi-arabia-us-output-cuts/

[6] https://oilprice.com/commodity-price-charts?&page=extquote&sym=CL*1&name=Crude%20Oil%20WTI 

[7] https://www.cnbc.com/2020/04/09/oil-jumps-ahead-of-make-or-break-opec-meeting.html 

[8] https://finance.yahoo.com/news/oil-extends-rally-producers-close-223500490.html

[9] https://www.cnbc.com/2020/04/09/oil-jumps-ahead-of-make-or-break-opec-meeting.html 

[10] https://www.bloomberg.com/news/articles/2020-04-10/mexico-reaches-oil-output-cuts-agreement-with-opec-and-trump

[11] https://www.wsj.com/articles/trump-putin-saudi-crown-prince-scramble-to-fix-oil-markets-11586523939

RP Weekly Recap | April 6-10

COVID-19 Updates

COVID-19 Statistics

  • Number of Cases (Worldwide): 1,650,210 (up from 1,041,126 last week)
  • Number of Cases (USA): 473,093 (up from 245,658 last week)
  • Statistics (courtesy of Johns Hopkins)

Financial & Economic Updates

US Oil Market News

  • The Dreams of U.S. Energy Independence Is Dying Along with The Shale Revolution (Link)
  • Small Oil Firm Reports Huge Alaska Oil Discovery (Link)
  • After a Decade of Waiting, the Keystone XL Will Be Built (Link)
  • Equinor Makes First Discovery in Gulf of Mexico Since 2015 (Link
  • Continental Resources Suspends Dividend to Cup Production By About 30% (Link)
  • Parsley willing to cut oil production 20% if deal reached, CEO says (Link)
  • U.S. Oil Production Could Fall By 2 Million Barrels Per Day (Link

Global Market News

  • When Will Oil Bounce Back (Link) **MUST READ** 
  • Superpowers Clash Ahead of Most Important Oil Meeting Ever (Link
  • Indonesia To Boost Oil Production Despite Price Crash (Link)

Employment Updates

  • Halliburton Cuts Jobs, Executive Pay (Link)
  • More Than 16 Million Americans Have Lost Their Jobs And The United States Has Lost 10% of Our Workforce In Three Weeks (Link

US Rig Count Statistics (courtesy of Baker Hughes)

  • (-62) in the last week 
  • Down 23% from one year ago


Content UpdatesNews PulsePodcast

  • Back To the Future (Link)
    • The role of the Texas Railroad Commission in curtailing domestic oil production
  • Predictions Before Thursday’s OPEC+ Meeting (Link)
  • March Basin News (Link
  • New Monday Madness Podcast (Link)

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