Oil-producing nations, led by Saudi Arabia and Russia, agreed Thursday to an unexpectedly large cut in global production, an effort to address a vast market oversupply spurred by the recent global economic turndown and end a nasty price war between Riyadh and Moscow.
The accord was at least tentatively a victory for the Trump administration, which had pressed hard for production cuts that would raise global prices and provide relief to struggling U.S. energy producers. President Trump last week had touted a possible supply cut on the order of 15 million barrels per day, although the deal apparently was for just 10 million.
Mr. Trump held a conference call with Saudi King Salman and Russian President Vladimir Putin to discuss details on the deal Thursday evening, delaying for an hour Mr. Trump’s nightly coronavirus briefing, but offered little detail on the agreement.
“I’d say we’re getting close to a deal,” Mr. Trump told reporters at the White House. “We’ll soon find out.”
The U.S. may be tested again Friday when the G-20 oil and energy ministers meet to discuss market conditions. Russia, Iran and other producers have been demanding American fracking companies also agree to production cutbacks, which the administration has resisted.
And although the size of the joint production cut was unprecedented, it was also not clear whether they would be enough to offset the near-collapse of demand in major markets as the world’s industrial economies shut down indefinitely in the fight against the coronavirus pandemic.
Under the terms of the deal emerging from an extraordinary teleconference of OPEC countries and Russia, the group will collectively cut production by 10 million barrels daily in May and June, and by 8 million barrels for the rest of 2020, and 6 million barrels a day in 2021, according to CNBC.
“COVID-19 is an unseen beast that seems to be impacting everything in its path,” OPEC Secretary-General Mohammad Barkindo said in kicking off Thursday’s meeting. “For the oil market, it has completely upended market supply and demand fundamentals since we last met on March 6.”
U.S. officials privately expressed satisfaction that the producers could reach a deal, but oil traders — perhaps expecting even larger cuts — were less impressed.
Brent oil prices, which have already fallen by half in 2020 due to falling demand and the Saudi-Russia production war, fell more than 2% to $32.01 a barrel in London trading as the deal was announced.
While the 10 million barrel cut was significant, OPEC officials say the daily global surplus has been running even higher, at about 14.7 million barrels a day since the start of the month.
That in turn raises questions in the market over whether even such a coordinated cut can raise prices, at least in the short term.
Even if prices rise in the short term, “we believe the enthusiasm will subside at some point and the reality of the size of the demand’s imbalance will eventually hit the market,” Bjornar Tonhaugen, head of oil markets for Rystad Energy, told CNBC.
Russia and Saudi Arabia, along with the U.S. the world’s largest oil producers, initiated a brief but intense price war last month.