Saudi, Russia outline record oil cut as demand crashes

OPEC, Russia and other allies outlined plans on Thursday to cut their oil output by more than a fifth and said they expected the United States and other producers to join in their effort to prop up prices hammered by the coronavirus crisis. But the group, known as OPEC+, said a final agreement was dependent on Mexico signing up to the pact after it balked at the production cuts it was asked to make. Discussions among top global energy ministers will resume on Friday.

The planned output curbs by OPEC+ amount to 10 million barrels per day (bpd) or 10% of global supplies, with another 5 million bpd expected to come from other nations to help deal with the deepest oil crisis in decades.

Global fuel demand has plunged by around 30 million bpd, or 30% of global supplies, as steps to fight the virus have grounded planes, cut vehicle usage and curbed economic activity.

An unprecedented 15 million bpd cut still won’t remove enough crude to stop the world’s storage facilities quickly filling up. And far from signalling any readiness to offer support, US President Donald Trump has threatened Saudi Arabia if it did not fix the oil market’s problem of oversupply.

Trump, who has said U.S. output was already falling due to low prices, warned Riyadh it could face sanctions and tariffs on its oil if it did not cut enough to help the US oil industry, whose higher costs have left it struggling with low prices.

A White House aide said Trump held a call with Russian President Vladimir Putin and King Salman of Saudi Arabia about the talks, after a US official said the OPEC+ move towards cuts sent an “important signal” to the market.

Officials from the Organization of the Petroleum Exporting Countries and Russia have said the scale of the crisis required involvement of all producers.

“We are expecting other producers outside the OPEC+ club to join the measures, which might happen tomorrow during G20,” the head of Russia’s wealth fund and one of Moscow’s top oil negotiators, Kirill Dmitriev, told Reuters.

Thursday’s OPEC+ talks will be followed by a call on Friday between energy ministers from the Group of 20 (G20) major economies, hosted by Saudi Arabia.

OPEC and Russian sources said they expected other producers to add 5 million bpd to cuts, although an OPEC+ statement on Thursday made no mention of any such condition.

Brent oil prices, which hit an 18-year low last month, were trading around $32 a barrel on Thursday, half their level at the end of 2019.

OPEC+ would cut output by 10 million bpd in May to June, OPEC+ documents showed. All members would reduce output by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd.

Under the plans, OPEC+ would then ease cuts to 8 million bpd from July to December and relax them further to 6 million bpd from January 2021 to April 2022, the documents showed.

The United States, whose output has surged to surpass Saudi and Russian production, was invited to Thursday’s OPEC+ talks but it was not clear if it had joined the video conference. Brazil, Norway and Canada were also invited.

U.S. officials have already said U.S. output would fall naturally over two years but have not committed to any cuts.

In a sign OPEC+ was struggling to win broader support, Canada’s main oil province of Alberta said output had already dropped and that it had not been asked by OPEC for more cuts. The province said it backed a U.S. idea for tariffs on imported crude.

Before the talks, Moscow and Riyadh had been at odds over what level of production to use to calculate reductions, after Saudi Arabia hiked its supply in April to a record 12.3 million bpd, up from below 10 million bpd in March. Russian output, meanwhile, has been running about 11.3 million bpd. The two nations fell out during an acrimonious meeting in Vienna in March, when a previous production deal collapsed.

The two sides agreed on Thursday that cuts would be made from an 11 million bpd baseline for both countries, OPEC+ documents showed.

“We have managed to overcome differences. It will be a very important deal. It will allow the oil market to start on a path to recovery,” said Dmitriev, who last month was the first official to propose a deal involving members other than OPEC+.

Several US states could order private companies to limit production under rarely used powers. The oil regulator in Texas, the largest producer among US states with output of about 5 million bpd, meets on April 14 to discuss possible curbs.

More on this subject: Coronavirus

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