Please ensure Javascript is enabled for purposes of website accessibility

OPEC Proposes Massive Oil Production Cuts... But the Deal Depends on Russia

By Jason Hall - Mar 5, 2020 at 1:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The deal hinges on whether non-OPEC partners including Russia agreeing to a combined 1.5 million-barrel daily production cut.

Only a few days after reports that Saudi Arabia was planning to propose a 1 million barrel per day reduction in crude oil output to its OPEC counterparts, the group, which controls more than one-third of the world's oil, has now agreed on a massive 1.5 million barrel production cut.

Unlike the reaction to the Saudi proposal, which sent crude oil prices up more than 4%, oil markets are not viewing today's news nearly so favorably. At this writing, both Brent and West Texas Intermediate crude futures are down slightly at $50.24 and $46.12 per barrel at recent prices. 

Oil worker setting pipe on drilling platform.

Image source: Getty Images.

Oil stocks are taking the news even less favorably. At this writing, shares of oil and gas giant ExxonMobil (XOM 2.23%) are down 5%, while the SPDR S&P Oil & Gas Explorer & Production ETF (XOP 1.21%) is down 4%. 

Proposed cuts hinge on Russia's decision

While OPEC member states have agreed to the proposal, OPEC+ member Russia has not yet to agreed to participate in the cuts. According to the deal, OPEC members will shoulder the first 1 million barrels per day in cuts -- essentially what Saudi Arabia was proposing -- but is asking for the countries that make up OPEC+ to take on the additional half-million barrels in cuts. 

Russia is by far the largest non-core-OPEC producer in the OPEC+ group, and the full cuts that OPEC is asking from this group requires Russia's involvement. However, the country's leadership has said that while they are open to cooperation, president Vladimir Putin has also said that, "...for the Russian budget, for our economy, the current oil prices [sic] level is acceptable." 

Whether OPEC+ can agree to the full 1.5 million cuts will remain to be seen, but it's clear by the oil market's reaction that the general feeling is it may not be likely. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$87.55 (2.23%) $1.91
SPDR Series Trust - SPDR S&P Oil & Gas Exploration & Production ETF Stock Quote
SPDR Series Trust - SPDR S&P Oil & Gas Exploration & Production ETF
$120.92 (1.21%) $1.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.