Ask Amanda: Why has OPEC+ extended its oil production cut?

Q: I heard that OPEC+ have agreed to extend the period of reduced production of oil. Why have they done this and what is the likely impact on the price of oil?

When coronavirus hit earlier this year and countries entered lockdown, the global demand for oil slumped. In April, in response to this decreased demand, OPEC+ (Organization of Petroleum Exporting Countries) agreed that oil production would be lowered until the end of June. This weekend they extended this reduced production period for an extra month until the end of July.

If production remains limited, as the global economy reopens and demand for oil begins to ramp up, then this should drive an increase in the price of oil. This will benefit all the major producers.

Despite the continued production cuts, it would seem like we aren’t seeing evidence of the desired effect as yet. Since the weekend the price of oil has continued to fall, and at the time of writing (Wednesday PM) the price was $32.80 a barrel. This would suggest that investors are perhaps more focused on other news in the industry such as BP’s announcement to cut 10,000 jobs by the end of 2020 as an indicator of what is to come before we see prices recover.

We recognise that not everyone classes themselves as a ‘Master Investor’…yet! For those who are new to our site and possibly new to investing too, we want to share our expertise by answering any questions you have. Master Investor’s CCO, Amanda, is learning to invest too, so will be happy to find the answers to your questions or use our network of experts to help answer the question. So, if you have a question about investing or want us to explain something, please send your questions to Amanda by commenting below or by emailing amanda@masterinvestor.co.uk. Fire away!