On Sunday, OPEC and its allies finalised a historic deal to tackle the issue of oil glut in the market triggered by drop in demand due to coronavirus lockdown. As part of the agreement, 23 countries agreed to collectively cut the global oil output by about 10%, which amounts to 9.7 million barrels a day. It is the largest cut in the oil production ever committed to. The deal, which got sealed over a conference call, was attended by delegates from the 13-nation Organization of the Petroleum Exporting Countries and others, including Russia. The key objective of the hurriedly signed deal was to take a call before oil markets opened on Monday, as they knew without any agreement in place the oil prices would go into free fall.
US President, Donald Trump, despite being absent from the Sunday meeting, had a big role to play in finalisation of the deal. Mr. Trump urged Russian, Saudi and Mexican leaders to put an end to the ongoing price war waged against each other, in an attempt to grab greater market share. This continuous effort by the US president, who was once an ardent opponent of the cartel, to keep all the opposing parties on the negotiation table was to save US companies from rolling down into bankruptcy.
As per the new deal, Mexico would withhold its oil production by 100,000 barrels per day, instead of the 400,000 barrels per day it had initially been asked to cut. US stepped in Mexico-Saudi standoff by agreeing to compensate on the behalf of Mexico, and agreed to drop 300,000 barrels per day of its own production. Saudi Arabia committed to cut its production by 350,000 barrels per day.
On Saturday, to push the deal towards finalisation some Republican senators spoke to the Saudi energy minister for about two hours, warning him that US could take back its longstanding alliance with the kingdom if he didn’t cut output. “The Saudis spent over a month waging war on American oil producers, all while our troops protected theirs. That’s not how friends treat friends,” Sen. Kevin Cramer, a North Dakota Republican, told Washington Post. Mr. Cramer said that he would supervise the implementation of the deal, which has been dropped three times in the past. He said,“We have to make sure these countries hold up their end of the deal, and we will be watching every step of the way.”