Is the Historic OPEC+ Deal the Global Economy's Savior?

Published April 15th, 2020 - 03:00 GMT
Is the Historic OPEC+ Deal the Global Economy's Savior?
Markets have been strongly hit by both the oil production war and the 2020 coronavirus pandemic. (Shutterstock)

It's no secret that the energy sector has been suffering the acute aftermath of massive lockdowns following the coronavirus outbreak worldwide.

Over the last few weeks, oil prices plunged severely, pressured by a decline in demand as thousands of cities around the world have suspended all sorts of factory manufacturing operations and limited all means of transportation, including air travel.

Prices have since plunged to historic lows; especially after Russia rejected a Saudi led OPEC demand of cutting production, in order to stabilize prices, ending a 2016-oil deal signed by the OPEC+ members.

In response to the Russian decision, Saudi Arabia announced plans for even larger production rates, that were expected to spike during the first week of April, before Saudi plans were curbed by a US attempt to bring the different sides together. Meanwhile, global markets suffered huge drops witnessed in stock markets' painful crash during March 2020.

Consequently, the US continued to pressure both Saudi Arabia and Russia to negotiate a new deal with other OPEC members, most notably Mexico, resulting in a new OPEC+ agreement to slash production by about 10 million barrels a day, hoping to stop drowning the market with more oil than needed. 

The new deal which was only announced this week can generate some stability in the energy markets temporarily, but stakeholders, whether governments or investors, shouldn't expect oil prices to start recovering any time soon, neither should stock markets.

Despite being a crucial agreement, often dubbed as historic, the new pact will not have an immediate impact on the global economy. The OPEC+ deal will only be able to help the strongly-struck global economies heal after the coronavirus crisis is over.

Unless the pandemic reaches an end at a global level, most probably using an effective drug or a safe well-developed vaccine, it's hard to expect the recent oil pact to bring any sense of stability to the badly infected markets.

In order for it to enjoy a considerable boost, oil prices will need developed countries to be reopened with factories, travel and other vital economic activities getting back on track.

Judging by the significant damage the global economy has been suffering so far, we can absolutely expect a very long recovery process once the pandemic is contained. This means that countries, who have agreed to the OPEC+ most recent agreement, should continue to adhere to its articles for as long as possible, in order for them not to disrupt the post-COVID-19 regaining process.

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