Image by Paul Brennan from Pixabay

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After weeks of talks and negotiations, the world's top oil producers have finally agreed to cut global crude output by a historic margin. The deal closed by the OPEC, Russia, and other global producers will effectively put an end to the global oil price war that has sent prices to record lows over the past months.

The bilateral talks and four days of video conferences between the world's top energy ministers had resulted in the historic deal. During the initial talks, the deal nearly fell apart after Mexico had exited after expressing disinterest in the proposed cuts. Fortunately, Mexico went back to the negotiating table over the weekend after diplomacy finally won it over.

Under the deal member countries of the OPEC Plus have agreed to cut a total of 9.7 million barrels per day, slightly lower than the initially proposed 10 million barrels per day. The United States, Canada, and Brazil have agreed to cut a combined 3.7 million barrels per day.

Other members of the Group of 20 nations (G20) have yet to formally announce their respective commitments. Among all of the countries involved in the deal, Mexico came out with the least production cut, committing to only lessening its output by 100,000 barrels. Mexico had agreed to the terms partly due to pressures placed on the country by the United States. After it balked at OPEC's terms, the country had threatened to bolster its oil production to gain further market share.

The cooperation between the world's largest producers comes at a crucial time for the industry given the rapidly declining demand. As the coronavirus pandemic continues to spread throughout the world, lockdowns and stay-at-home orders imposed by governments are still widely in place. With travel restricted, gasoline and oil demand has dropped dramatically.

The demand slump coupled with the oil price war threatened the future of the industry, particularly the stability of oil-dependent states such as major producers in the Middle East. With the oil price war now at an end and all major producers agreeing to cooperatively cut output, the question remains if the efforts will be enough to stabilize the market.

What is worrying some analysts right now is how the economic effects of the pandemic could be detrimental to consumption in the long term. With the supply now under control, further decline in demand could render the effort moot. OPEC has acknowledged this possibility and stated that the demand fundamentals in the short term are "horrifying."

Tagsopec, Global Producers, Cutting Output