Russia and Saudi Arabia agreed to cut oil production, but this is not enough

The Russian government, together with OPEC, agreed on the largest reduction in oil production, Forbes reports, citing the Financial Times. Now the countries will be producing 10 million barrels per day, which is comparable to 10% of the demand for petroleum products in the past.

Half of this share will be reduced by Saudi Arabia and Russia, which are the largest suppliers of raw materials, the remaining 5 million will be divided among other OPEC+ countries. In this regime, the states will produce oil until April 2022, but the amount of reductions will be adjusted depending on the speed of recovery in demand.

Participants called for an additional 5 million barrels to be cut by the United States and Canada. The proposal will be discussed at the G20 meeting.

Before the countries reached an agreement, the price of black gold rose after news that Russia and Saudi Arabia were ready to come to an agreement. The cost of futures for the delivery of Brent crude oil in June rose by almost 11% and amounted to $36.38, but later the price dropped again and at the close of trading was $31.36. This reaction of traders means that they are not sure that the agreement will be able to compensate for the sharp decline in demand caused by the coronavirus pandemic.

The sharp drop in oil prices is primarily due to the fact that there is too much of it in the world. In parallel with this, there are not enough pipes for its transportation, as well as the buyers who need it.

Earlier, the investment bank Goldman Sachs said that a reduction in production by 10 million barrels per day would not correct the situation. Due to the reduction in air travel and business activity, the global demand for black gold has decreased by 30 million barrels per day.