A watershed agreement in April to slash oil production by the Organization of the Petroleum Exporting Countries and its allies, aka OPEC-plus, has begun to achieve its intended effect of rebalancing an oversupplied global crude market, the U.S. Energy Information Administration (EIA) said Wednesday.

At the time of the agreement, OPEC-plus called for a cut to oil output by an initial 9.7 b/d in May that gradually tapers through April 2022, when the deal culminates. This came in response to the demand destruction imposed by the coronavirus pandemic and the heavy downward pressure it put on oil prices last spring.

EIA said its data show that total crude production decreased by 6.0 million b/d from April to May as a result of the deal, marking the largest monthly decline since 1993. Compared with January 2020 total petroleum liquids production, partner countries’ output fell by an estimated 5.9 million b/d in May, 7.9 million b/d in June, 7.1 million b/d in July, and 5.6 million b/d in August. OPEC members Iran, Libya, and Venezuela were exempt from the agreement because of economic sanctions or domestic political instability, EIA noted.

EIA estimates that the OPEC-plus cuts, along with declines in production in the United States and elsewhere, pushed global supply below demand for the first time since mid-2019. This has resulted in significant global liquid fuels inventory draws since June, the agency said. EIA expects inventories to continue declining in the second half of 2020 and during most of 2021, even as demand is anticipated to increase as economies around the globe adapt to the pandemic, resulting in a relatively balanced market by the end of next year.

EIA separately reported Wednesday that U.S. crude inventories declined by 1.6 million bbl for the week ended Sept. 18. At 494.4 million bbl, however, domestic inventories are about 13% above the five-year average for this time of year.

In an earlier report, EIA estimated that global petroleum demand fell from 100.7 million b/d in the first half of 2019 to 90.0 million b/d in the first half of 2020. U.S. monthly exports set a record monthly high of 3.7 million b/d in February, but then declined steadily and fell below 3 million b/d in May and June, the most recent month for which final data was available for the EIA report.

Moody’s Investors Service said this week that improving fundamentals bolstered the summer rebound in oil prices from April, when Brent crude slipped below $20/bbl and West Texas Intermediate (WTI) plunged into negative territory. Though it expects a gradual and choppy price recovery over the remainder of this year and into 2021 — given the uncertainties of the pandemic — Moody’s expects lower oil supply to continue underpinning oil, with near-term prices forecast to average $40-45, before slowly reaching $45-65. 

Brent crude daily average prices were 51% lower in 2Q2020 compared to a year earlier and averaged $33, according to EIA.

EIA also said Wednesday that second quarter petroleum liquids production among 102 covered companies fell 4.9% from a year earlier, while natural gas production decreased 5.6%.

These companies increased both short-term and long-term borrowing in the second quarter, boosting debt by $72 billion during the quarter. Capital expenditures, meanwhile, declined to $44 billion during the second quarter, the lowest for any quarter over the past five years, EIA said.