On April 12th, the world’s top oil producers agreed to cut production by 9.7 million barrels per day – roughly 10%of the world’s daily supply. The agreement is intended to stabilize oil prices and global markets, which has been in turmoil since Russia and Saudi Arabia began their price war last month.

  • Before the COVID-19 pandemic, the average daily demand was approximately 100 million barrels.
  • Since the pandemic, demand has fallen by 20% to 35%.1
  • Current gas prices in Charlotte, NC and surrounding areas as of April 14th, ranged from $1.29-$1.45/gal


As the coronavirus pandemic caused air and ground travel to grind to a halt, last month Saudi Arabia and other OPEC producers were publicly weighing production cuts to help keep prices stable. However, Russia refused to commit to reducing its output.

  •  In response, Saudi Arabia increased oil production by 3 million barrels a day, effectively flooding the market and driving prices even further down.
  • The announcement caused oil prices to plunge and global markets to fall into turmoil. Brent crude futures, the global benchmark for oil prices, fell to almost $20 a barrel, its lowest trading price in nearly twenty years.2

The price war also posed a threat to American oil companies that directly and indirectly employ 10 million workers.

  • To prevent the potential collapse of the American energy industry and further damage to the economy, President Trump stepped in last month to help broker a dealer between Saudi Arabia and Russia.3

The Agreement

The agreement was made between OPEC, Russia and the other member nations of “OPEC+”. In addition to the agreement, major non-OPEC oil producers have announced cuts of their own.

  • Brazil’s state-run Petrobras will reduce its output by 200,000 barrels per day.
  •  Other G-20 states will collectively cut production by an additional 1.3 million barrels a day.

The cuts of 9.7 million barrels per day will start May 1st and go through June. From July to December, that number will taper to 7.7 million, and in January 2021, cuts will taper again to 5.8 million barrels a day until April 2022.4

The Effects

Brent crude futures and U.S. West Texas Intermediate (WTI) crude futures posted tentative gains after the deal was announced.
Analysts expect oil prices to remain below $40/barrel for the foreseeable future.

  • While this is low from a historical standpoint, inaction could have led to single-digit prices per barrel.5

Goldman Sachs Group called the cuts “too little and too late,” saying the deal would only lead to an actual reduction of about 4.3 million barrels/day.

  • “Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 million barrels a day average April to May demand loss due to the coronavirus.”6
  • Despite this, Goldman Sachs noted they believe that the “violent market rebalancing” in oil prices will eventually be followed by a sharp rebound in oil prices, once demand increases to something approaching pre-pandemic levels.

Flash update: ​ On Tuesday, crude oil futures sold off 10% as investors focused on the demand destruction that COVID-19 has brought to global markets. We may not be out of the woods yet, and prices are likely to feel downward pressure until demand returns in a meaningful way.7


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