By Stephanie Kelly
NEW YORK (Reuters) – An oil producer deal to make record output cuts will lend some support this week to oil prices that have lost half their value this year as the coronavirus hammers demand.
Total global oil supply cuts could come to 20 million barrels per day, around 20% of global supply, Kuwait’s oil minister said. After four days of wrangling, OPEC, Russia and other oil-producing nations, a group known as OPEC+, agreed on Sunday to cut output by a record amount of 9.7 million barrels per day, representing around 10% of global supply to support oil prices amid the pandemic, sources said.
Kuwait’s oil minister said the effective reduction in oil supply by OPEC+ and other G20 countries would be roughly 20 million bpd.
“If G20 adds about another 10 mln bpd, then the world is meeting the total imbalance from May and this would be a massive relief,” Rystad Energy said. “Still storage will be filled to nearly the top in April, but the market will stabilize.”
The leaders of the world’s top three oil producers,
Russian President Vladimir Putin, U.S. President Donald Trump and Saudi Arabia’s King Salman, all supported the OPEC+ deal to cut global crude output, the Kremlin said on Sunday.
Trump praised the deal, saying it would save jobs in the U.S. energy industry.
Saudi Arabia, Kuwait and the UAE volunteered to make cuts even deeper than those agreed, which would effectively bring the OPEC+ supply down by 12.5 million bpd from current supply levels, the Saudi energy minister said.
“I am honored to be a party of this historic moment and historic agreement,” Saudi’s Prince Abdulaziz bin Salman told Reuters.
Worldwide fuel consumption is down roughly 30%, due to the COVID-19 pandemic caused by the novel coronavirus that has killed more than 100,000 people worldwide and kept businesses and governments on lockdown.
The deal could boost prices whose values have more than halved since the start of the year, before major effects from the pandemic began to sink in. Brent crude futures () settled at $31.48 a barrel on Thursday, while U.S. crude futures () were last at $22.76 a barrel.
On Thursday, OPEC+ outlined plans to cut output by more than a fifth, or by 10 million barrels per day (bpd), but Mexico balked at the production cuts it was asked to make, delaying the signing of a final deal. The group met on Sunday to hammer out a deal.
OPEC+ has also 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 signaled a willingness to cut. The United States, where anti-trust legislation makes it hard to act in tandem with cartels such as OPEC, has said its output would fall by as much as 2 million bpd by itself this year because of low prices.
“We’re going to see a significant drop in production anyway from producers who can’t make money producing,” said Phil Flynn, an analyst at Price Futures group. “A deal should give us enough cushion to get us through the next few months.”
Speaking ahead of the OPEC+ meeting, Russian Energy Minister Alexander Novak said the United States was ready to cut its oil output by 2 million to 3 million barrels per day, Interfax news agency reported, although it was unclear if he was referring to market-based cuts.
More than 1.7 million people have been reported to be infected by the novel coronavirus globally and 109,519 have died, according to a Reuters tally. Governments have ordered residents to stay home to curb the spread, roiling markets and disrupting daily life.