DUBAI: Saudi Arabia and Russia have agreed to “historic” cuts in oil production in a bid to rebalance crude markets that are in crisis because of the dramatic decline in global energy demand.
The cuts, agreed on during a virtual meeting of oil producers hosted by the Vienna headquarters of the Organization of Petroleum Exporting Countries, will take more than 10 million barrels of oil out of production each day for the immediate future.
The final details of the “outline” deal are still being considered, and Saudi oil sources said a definitive remedy to the challenges facing the global oil industry might have to await a meeting of G20 energy ministers, under the Saudi presidency of the group, which is scheduled for today.
The timing, duration and scale of the cuts were being worked out by OPEC delegates last night.
The deal — which resets the OPEC+ alliance — represents a rapprochement between Saudi Arabia and Russia, who fell out last month over production cut plans, and exchanged angry words last weekend about the oil price war.
“Russia and Saudi Arabia, working closely together with the US, can bring stability back to global energy markets,” Kirill Dmitriev, chief executive of the Russian Direct Investment Fund and a member of the Russian negotiating team, told Arab News.
“It is an important and historic moment that, in the face of the pandemic, we have agreed to put aside differences and move toward a deal that will involve OPEC+ members and other oil-producing countries.”
The price of Brent crude, the Middle East benchmark, reflected the ongoing concern about the level of over-supply, regardless of the OPEC+ deal. It stood at $33.35, down almost 1 percent, in mid-afternoon US trading.
The online meeting began with a gloomy outlook as OPEC detailed the collapse of global oil demand. Analysts believe that more than 20 percent of worldwide consumption disappeared in March as economies ground to a halt because of measures to slow the spread of the coronavirus. With producers pumping crude at record rates, they are rapidly running out of global storage capacity.
Mohammed Barkindo, OPEC’s secretary general, told delegates that storage space will be full by next month if no cuts are agreed. He estimated that an average of 6.85 million barrels per day of demand would be lost this year. “The supply and demand fundamentals are horrifying,” he added.
Alexander Novak, the Russian energy minister, told the meeting that all oil producers should contribute to the cuts. His comment was aimed at the US, which was not represented at the Vienna gathering. Dan Brouillette, the US energy secretary, is expected to take part in the G20 conference today.