Vienna: The top oil-producing countries agreed on ‘historic’ output cuts to prop up prices hammered by the coronavirus crisis and a Russia-Saudi price war, sending crude prices soaring Monday.
The US benchmark WTI climbed 7.7 per cent to $24.52 a barrel in early Asian trade while Brent was up 5.0 percent at $33.08.
OPEC producers dominated by Saudi Arabia and allies led by Russia thrashed out a compromise deal via videoconference Sunday after Mexico had balked at an earlier agreement struck Friday.
In the compromise reached Sunday they agreed to a cut of 9.7 million barrels per day from May, according to Mexican Energy Minister Rocio Nahle, down slightly from 10 million barrels a day envisioned earlier.
OPEC secretary General Mohammad Barkindo called the cuts ‘historic’. “They are largest in volume and the longest in duration, as they are planned to last for two years,” Barkindo said.
The agreement between the ‘Organisation of the Petroleum Exporting Countries’ based here in the Austrian capital and partners foresee deep output cuts in May and June followed by a gradual reduction in cuts until April 2022. Barkindo added that the deal ‘paved the way for a global alliance with the participation of the G20’.
Saudi Energy Minister Prince Abdulaziz bin Salman, who chaired the meeting together with his Russian and Algerian counterparts, also confirmed that the discussions ‘ended with consensus’.
“We have demonstrated that OPEC+ is up and alive,” Bin Salman said minutes after the deal was done. “I’m more than happy with the deal.”
US President Donald Trump welcomed a ‘great deal for all’. Donald Trump said on Twitter that the deal would ‘save hundreds of thousands of energy jobs in the United States’. “I would like to thank and congratulate Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, both of whom I had spoken to,” Trump added.
The Kremlin confirmed the joint phone call, adding that both Vladimir Putin and Donald Trump agreed on the ‘great importance’ of the OPEC deal.
Oil prices have slumped since the beginning of the year due to the COVID-19 pandemic that has sapped demand as countries around the world have put their populations under lockdown.
Compounding the problem, key players Russia and Saudi Arabia had engaged in a price war, ramping up output in a bid to hold on to market share and undercut US shale producers.
‘Rystad Energy’ analyst Per Magnus Nysveen said Sunday’s agreement provided ‘at least a temporary relief’ as fuel consumption is expected to fall globally by 27 million barrels per day in April and 20 million barrels per day in May.
The focus of the market now shifts to whether the cut will be enough to dent the massive supply glut, which keeps growing as the virus shuts down global economy. The deal may turn out to be ‘just a plaster on an open wound’, consultant ‘JBC Energy GmbH’ said in a note Monday.
The accord caps a tumultuous month when Brent crude, the global benchmark, plunged to its lowest in nearly two decades, falling toward $20 a barrel. Earlier this year, it traded above $70 a barrel. OPEC+ ministers had to race onto a video conference call on Easter Sunday, less than four hours before the oil market reopened, to close the deal.