The Organization of the Petroleum Exporting Countries, Russia and other countries reached a tentative agreement on Thursday to temporarily cut production.
OPEC and the other oil-producing countries agreed to cut 10 million barrels a day — about 23 percent of their production levels — in May and June, they said in a statement on Friday. Possible further trims could come from a meeting of the Group of 20 nations on Friday.
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Negotiations hit a snag late Thursday over Mexico’s reluctance to cut its share of oil, reportedly 400,000 barrels a day, leaving the deal in limbo. In the statement, the group said the deal was conditional on Mexico’s consent.
Even before that happened, oil prices fell because analysts and traders had hoped for a bigger reduction to prevent the buildup of a glut of oil. On Thursday afternoon, the West Texas Intermediate crude future contract, the American benchmark, was down more than 7 percent to $23.28 a barrel.
Amrita Sen, chief oil analyst at Energy Aspects, a research firm, said markets would not be impressed by the deal.
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“In a nutshell, the demand declines are going to be greater than the production declines,” said Ms. Sen. She estimated that demand would be down 25 million barrels a day, or about one-quarter of normal consumption, in April.
In addition, the new cuts won’t begin until May, allowing oil supplies to increase. There are also doubts about whether some of the countries party to the cuts, like Iraq, which often produces whatever it can, will really observe them. Ms. Sen said that OPEC and its collaborators were largely doing what they would be forced to do anyway.
“With the sharp decline in demand,” global producers will be forced shut down some production “because we will run out of storage space, “ she said. “OPEC-plus is simply codifying what they would have had to cut anyway.”
Still, the meeting appears to be at least a start at tackling the most serious problem the oil industry and OPEC countries have encountered in decades. The decision to cut might go some way toward assuaging growing tensions between members of the cartel and the United States.