Picture: 123RF/PAN DENIM
Picture: 123RF/PAN DENIM

Major oil producers have agreed to slash output as feuding members of the oil cartel and other oil-producing nations, including Russia, Opec+ buried their differences in an effort to lift the market from a pandemic-driven collapse.

Opec+, meeting by video conference on Thursday, now have the outline of a deal to cut production by 10-million barrels per day (bpd), delegates said. Importantly, Russia has agreed to make deep cuts, the delegates said.

Oil prices pared gains, trading up 1.6% in London at $33.37 a barrel as of 4.13pm local time. This reflects concern that the volume of cuts being discussed equates to just a fraction of the demand loss, which some traders estimate to be as much as 35-million bpd.

It’s unclear whether the tentative deal is contingent on the US also committing to curbs at talks on Friday. An agreement from Opec+ and a broader alliance — that includes the US — is crucial to reviving prices that have sunk to an 18-year low.

Not only oil companies, but entire oil-dependent economies need the market to rebound if they’re to balance ailing budgets.

Friday’s G20 talks will provide the forum for US President Donald Trump to respond to Opec+’s agreement. The Kremlin has insisted that the US must do more than just let market forces reduce its own record production.

Trump, meanwhile, has said his country’s cut will happen “automatically” as low prices put the shale oil industry in dire straits.

If Opec+, the US and other producers can cement an agreement at the G20 meeting, the curbs would dwarf any previous market interventions. That’s something that the physical market for crude — trade in actual cargoes rather than futures contracts — needs immediately, but it won’t match losses from the unprecedented slump in demand.

Bloomberg

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