The new agreement by the OPEC+ group of oil-producing countries is set to take effect on May 1, but Saudi Arabia has already begun implementing cuts, according to a Saudi industry official speaking to Bloomberg.
The new deal aims to cut the world’s oil supply by 10%, which means taking some 9.7 million barrels per day (bpd) off the market. Saudi Aramco alone, the national Saudi oil company, is scaling back its production from 12 million bpd to just 8.5 million bpd. Neighbouring Kuwait has also begun scaling back its production, saying that it felt obliged to respond to market conditions. Nigeria is also reducing its oil production due to a lack of storage.
The early cuts are believed to be due to the time needed for Aramco to safely reduce production by 3.5 million bpd, so it is implementing cuts gradually ahead of the May 1 cut-off date. It is expected to reach its targeted production level a little before the deadline.
Despite the unprecedented scale of the OPEC cuts, oil prices have continued to decline. The general consensus is that further cuts are needed from other big producers like the US, but market pressures are likely to bring this about anyway. Diamond Offshore Drilling, for example, recently filed for Chapter 11 bankruptcy protection due to the low oil price. Big producers in the US like ExxonMobil and BP are likely to fare better, especially as they also have downstream operations, such as making lubricant products under the Mobil and Castrol brands.