Beginning on May 1, the alliance cut production by 9.7 million barrels per day. The cuts were initially supposed to begin declining on July 1. Now, July’s production cut will be 9.6 million bpd after Mexico, which accounts for 100,000 bpd, said it remained committed to the group’s prior agreement.
The cuts will be reviewed on a monthly basis, with the next meeting slated for June 18. One ongoing issue for OPEC has been nations not abiding by their prescribed quotas, and Saturday’s agreement is contingent upon greater levels of compliance. Nations that have failed to curb output by their allocated amount must enact additional cuts in July, August and September in order to make up for non-compliance in May and June.
Ahead of the meeting, the oil market displayed optimism over an agreement. On Friday West Texas Intermediate jumped 5.72% to settle at $39.55, while international benchmark Brent crude gained 5.78% to settle at $42.30. It was each contract’s sixth straight week of gains, and the highest settle since March 6.
Under the prior agreement, which was set during an extraordinary multi-day meeting in April, the 23-member group began curbing production by 9.7 million bpd on May 1, which was slated to extend through the end of June. The cuts would then begin to taper. From July through the end of 2020, 7.7 million bpd would be taken offline, followed by 5.8 million bpd from January 2021 through April 2022.
The cut — the largest in history — came as oil demand fell off a cliff due to the coronavirus pandemic. The International Energy Agency estimates that about one quarter of demand was sapped in April as billions of people around the world stayed home in an effort to slow the spread of Covid-19. The hit to demand came as producers continued to pump oil, which sent WTI tumbling into negative territory for the first time on record, while Brent fell to a 20-year low.