Oil cartel OPEC and Russia (together OPEC +) agreed on Thursday to reduce oil production. Daily production is reduced by ten to eleven million barrels. The measure may apply until 2022.
After the announcement, the price of a barrel of Brent oil dropped to $ 32, after rising 10 percent earlier today. Investors responded to rumors of this deal that had been circulating all day. The content of the deal is disappointing, according to the investors, because the decrease would not be large enough.
OPEC plus Russia hope that other oil-producing countries will also participate in the reduction of production, including the United States, Canada, Brazil and Norway. Those countries should reduce production by another five million barrels a day. The issue will be discussed in a G20 meeting between energy ministers on Friday.
Oil prices fell sharply
The reason for the production cut is the crashed oil price: the price of a barrel of oil has halved since March. At its lowest point, a barrel of Brent oil cost 21.65 US dollars (20.7 euros), the lowest price since 2001.
The oil price plummeted in March, due to a combination of the stalled global economy causing plunging demand for the commodity and an increase in oil production. The oil tap was opened after an argument between Russia and Saudi Arabia, after which the latter decided to increase production considerably.
This argument seems to have been settled for the time being with the deal: both countries are reducing production by more than ten percent, which means a reduction of 10 to 11 million barrels per day.
See also: Why the oil price is so low