OPEC and its allies led by Russia agreed Thursday to cut oil output by more than a fifth and said they expected the U.S. and other producers to join in their effort to prop up prices hammered by the coronavirus crisis.
The cuts by OPEC and its allies, a group known as OPEC+, amount to 10 million barrels per day 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 curb 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 signaling any readiness to offer support, U.S. President Donald Trump has threatened OPEC 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 U.S. 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, after a U.S. official said the move by OPEC+ sent an “important signal” to the market.
Both OPEC and Russian officials have said the scale of the crisis required the involvement of all producers.
“We are expecting other producers outside the OPEC+ club to join the measures, which might happen tomorrow during G-20,” 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 (G-20) major economies, hosted by Saudi Arabia. OPEC and Russian sources said they expected other producers to add 5 million bpd to cuts.
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+, which groups the Organization of the Petroleum Exporting Countries, Russia and others, would cut output by 10 million bpd in May to June, OPEC+ documents showed.
All members will reduce their output by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd.
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.
OPEC+ sources said they expected cuts from the U.S. and others to amount to about 5 million bpd but the OPEC+ plus statement made no mention of such condition.
The sources said cuts would be gradual, as the group seeks to overcome resistance from the U.S. whose involvement they see as vital to a deal. U.S. officials have already said output would fall naturally over two years.
The U.S., whose output has surged to surpass Said 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.
In a sign OPEC+ was struggling to win broader support, Canada’s main oil province of Alberta said output had already dropped and 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 at 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 U.S. states could order private companies to limit production under rarely used powers. The oil regulator in Texas, the largest producer among U.S. states with an output of about 5 million bpd, meets on April 14 to discuss possible curbs.
If Saudi Arabia failed to rein in output, U.S. senators called on the White House to impose sanctions on Riyadh, pull out U.S. troops from the kingdom and impose import tariffs on Saudi oil.