OPEC and allies led by Russia agreed on Sunday to a record cut in output to prop up oil prices amid the coronavirus pandemic and said they had an unprecedented deal with fellow oil nations, including the United States, to cut global oil supply by 20%.
The group, the Organization of the Petroleum Exporting Countries (OPEC) said it had agreed to reduce output by 9.7 million barrels per day (bpd) for May and June, after four days of talks and following pressure from the U.S. President Donald Trump to remedy the price decline.
The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.
“The big Oil Deal with OPEC is done. This will save hundreds of thousands of energy jobs in the United States,” Trump wrote on Twitter, And then went on to thank the Russian President and the Crown Prince for pushing the deal through.
OPEC has said in a draft statement that it expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1.
Three OPEC sources said effective oil output cuts would include contributions from non-members, steeper voluntary cuts by some OPEC members and strategic stocks purchases by the world’s largest consumers.
The sources said non-members Brazil, Canada, Norway and the United States would contribute 3.7 million bpd. Gulf members of the Organization of the Petroleum Exporting Countries will be cutting output more steeply than agreed, OPEC sources said.
Trump had earlier threatened OPEC leader Saudi Arabia with oil tariffs and other measures if it did not fix the market’s oversupply problem as low prices have put the U.S. oil industry, the world’s largest, in severe distress.
Canada and Norway had signalled a willingness to cut and the United States, where legislation makes it hard to act in tandem with cartels such as OPEC, said its output would fall steeply by itself this year because of low prices.
The OPEC deal had been delayed since Thursday, however, after Mexico, worried about derailing its plans to revive heavily indebted state oil company Pemex, balked at the production cuts it was asked to make.
Mexican President Andres Manuel Lopez Obrador said on Friday that Trump had offered to make extra U.S. cuts on his behalf, an unusual offer by the U.S. leader, who has long railed against OPEC.
Trump said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not say how that would work.
A previous agreement by OPEC to cut production this year fell apart because of a dispute between Russia and Saudi Arabia, triggering a price war that brought a flood of supply just as demand for fuel was crushed by the coronavirus pandemic
Global oil demand is estimated to have fallen by a third as more than 3 billion people are locked down in their homes due to the outbreak.
A 10–15% cut in supply might not be enough to arrest the price decline, banks Goldman Sachs and UBS predicted last week, saying Brent prices would fall back to $20 per barrel from $32 at the moment and $70 at the start of the year.
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