OPEC, Russia and
other oil producing nations agreed on Sunday to cut output by a
record amount, representing around 10% of global supply, to
support oil prices amid the coronavirus pandemic.
The group, known as OPEC+, agreed to reduce output by 9.7
million barrels per day (bpd) for May-June, after four days of
marathon talks and following pressure from U.S. President Donald
Trump to arrest the price decline.
Two OPEC+ sources told Reuters the deal had been sealed in a
video conference on Sunday, and the agreement was confirmed in a
statement from by Kazakhstan's energy ministry.
In the biggest oil output cut ever, the countries will keep
gradually decreasing curbs on production in place for two years
until April 2022.
Measures to slow the spread of the coronavirus have
destroyed demand for fuel and driven down oil prices, straining
budgets of oil producers and hammering the U.S. shale industry,
which is more vulnerable to low prices due to its higher costs.
Trump had 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.
OPEC+ has said it wanted producers outside the group, such
as the United States, Canada, Brazil and Norway, to cut a
further 5% or 5 million bpd.
Canada and Norway had signalled 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 due to low prices.
The signing of the OPEC+ deal had been delayed since
Thursday, however, after Mexico balked at the production cuts it
was asked to make.
Mexican President Andres Manuel Lopez Obrador said on Friday
that U.S. President Donald Trump had offered to make extra U.S.
cuts on his behalf, an unusual offer by a Trump 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
this would work.
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 coronavirus outbreak.
A 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.