EXPLAINED: What is the historic oil deal all about?
Oil fields in Saudi Arabia
The oil producting countries have finally agreed upon a production cut. As per the historic deal signed today, 10 per cent of the global oil supply would be cut. After a lot of hiccups, Organization of Petroleum Exporting countries (OPEC), and its allies led by Russia reached this deal.
However, the deal got a tepid reaction. The two leading benchmarks of oil sellers and buyers, Brent Crude and West Texas Intermediate remained unmoved in trade today.
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What is the historic deal?
As per the deal, the production cut of oil supply will be nine million barrels per day for May and June. The cut is four times more of what was undertaken post 2008 financial crisis.
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However, this might not be enough as experts predict a drop in demand of over 30 million barrels a day just in the month of April.
Also read |COVID-19: A crisis manufactured?
Why the demand of oil dropped?
During the beginning of 2020, oil prices were in between 65 to 70 dollars per barrel. When coronavirus hit China, the factories began to shut, which led to a slide in oil prices. China is the biggest consumer of oil in the world.
On March 13, the oil market began to witness its worst slide in over a decade when theWorld Health Organization (WHO) declared Europe as the new epicentre of the epidemic. Now, the oil market has collapsed with prices dropping to 25 dollars per barrel.
The hindrances in the deal
The deal came after a lot of tensions between Russia and Saudi Arabia. Initially, Russia's Vladimir Putin rejected the deal and started a price war with Saudi Arabia. The US intervened as America was also suffering from losses from Shale oil reserves. US President Donald Trump urged Putin and Saudi Crown Pricne Mohammed bin Salman to work together to strike a deal.