Vladimir Putin and Mohammad bin Salman Al Saud at meeting in Kremlin. Image source: Photography by kremlin.ru, licensed under CC BY 4.0
In a monumental victory for global diplomacy, the energy ministers of the world's biggest oil-producing countries finally reached a deal on production cuts, in a videoconference held on Sunday.
The accords officially ended the price war that was raging on between Saudi Arabia and Russia for over a month, as the two countries agreed to commit to the proposed production cuts.
Along with other members of OPEC+, as well as non-participating states, the agreed-upon reductions in oil production reached almost a 10th of the output that was being pumped until now.
In the post-decision statement, the Organisation stated that all participating countries in the deal agree to:
“Adjust downwards their overall crude oil production by 9.7 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 7.7 mb/d. It will be followed by a 5.8 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022”
Despite the favourable conclusion to the negotiations impasse, however, the price of crude oil fell today because of two significant reasons.
The agreed-upon reductions of 9.7 million barrels per day came just below the initially proposed 10 million barrels per day. This decision ultimately took away from the significance of the agreement.
Moreover, the agreements would be implemented from the 1st of May onwards, which means that the glut in the global supply would be allowed to persist at least until the end of April.
The energy market would thereby need more time to find a stable, new supply and demand equilibrium. Until it does, the price action of crude oil is likely to remain muted.
During today’s trading session, oil broke down below the 61.8 per cent Fibonacci retracement level at 23.47, which serves as a prominent support level.
The price action is currently consolidating just below the support level, which coincides with the regression channel’s middle line.
Crude Oil 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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