DUBAI: Big oil producers led by Saudi Arabia and Russia agreed on Sunday to cut output by 9.7 million barrels a day as energy markets grapple with the fallout from the coronavirus pandemic.
The biggest oil deal in history was clinched after three days of hard bargaining, two “virtual” meetings by video conference and a special meeting of G20 energy ministers.
The tipping point was a compromise by OPEC+ — the alliance of OPEC members and non-OPEC producers — to accommodate Mexico, which had resisted pressure to cut output by 400,000 barrels a day. US President Donald Trump intervened to ease through the special Mexico terms, under which it will reduce output by much less than other OPEC+ members.
Trump thanked King Salman and President Vladimir Putin for a "great" deal.
"The big Oil Deal with OPEC Plus is done," he said. "This will save hundreds of thousands of energy jobs in the United States."
Saudi Arabia’s energy minister Prince Abdulaziz bin Salman, who chaired the meeting, said the cuts would amount to 12.5 million barrels per day, because of higher output in April from Saudi Arabia, the UAE and Kuwait.
"I am honored to be a party of this historic moment and historic agreement," Prince Abdulaziz told Reuters.
The UAE's energy minister Suhail Al-Mazrouei said the Emirates is committed to reducing its oli production from the current level of 4.1 million barrels a day.
The production cuts will take about 10 percent of global oil output off the market from May 1. Global demand for crude is down by at least 20 percent.
On Tuesday, Saudi Aramco will release its “official selling prices” for crude in May, a key indicator of how the Kingdom thinks the market will go.
Aramco agreed to cut output by 23 percent under the OPEC+ deal, and delegates at the virtual conference said there could be further reductions — about 3.5 million barrels — from other big producers such as the US, Canada and Norway, whose output is in decline because of the pandemic.
After the agreement was reached, Kremlin spokesman Dmitry Peskov said: “The whole world needs it. That’s because the global economy will be on the brink of uncontrolled chaos in prices, on energy supplies, unless there is such a deal.”
Leonid Fedun, head of one of Russia’s big oil companies Lukoil, said he expected the oil price to remain in the $30-$40 range after the deal. Nigeria’s energy minister, Emmanuel Kachikwu, said he hoped for a rise of at least $15 on oil’s closing price last week of $32.
Oil producers will be waiting anxiously to see how news of the cuts is received by crude markets when they open after a Western holiday weekend and the prolonged OPEC+ and G20 talks.
Matt Stanley, oil broker at Starfuels in Dubai, said: “Whatever way the 10 million barrel cut is finally agreed, it is not enough to balance the markets.”