The OPEC+ decided to reduce oil production by 10 million barrels/day. This will not be enough to offset the steep fall in global oil demand, estimated at 30 million barrels/day. Oil prices cannot recover till the ongoing demand slump is over – which can only happen once the ongoing coronavirus pandemic is controlled and the major economies (including India) reopen for business.
Of the 10 million barrels/day production cut, Saudi Arabia will contribute 4 million barrels/day and Russia will cut 2 million barrels/day. It is not clear how the remaining production cut will be split among group members and whether they will follow the decisions given that cheating on production quotas by smaller members has been a major problem in the past. These cuts will also take time to implement, at least a few months.
The US, which is the world’s top oil producer, is not a part of this deal. However, oil production from the US is likely to decline on its own – because of market signals. Shale oil wells have a short life of few weeks to months, and new wells have to be drilled to maintain production. If production becomes unprofitable, producers simply cut down on new drilling and production goes down.