The world’s top oil producers pulled off a historic deal to cut global petroleum output by nearly a 10th, putting an end to a devastating price war but not going far enough offset the impact of the coronavirus pandemic.
A week-long marathon of bilateral calls and ministerial video conferences joined the OPEC+ alliance and the Group of 20 nations in an unprecedented agreement. Together they have helped to lift oil prices from almost 20-year lows, but the focus of the market now shifts to whether they can dent a supply glut that keeps growing as the virus shuts down the global economy.
The deal may turn out to be “just a plaster on an open wound,” consultant JBC Energy GmbH said in a note. After swinging wildly in the first few minutes of trading, crude was down slightly London on Monday.
Despite the skepticism, the agreement still represents an important victory for the alliance between the Organization of Petroleum Exporting Countries and allies including Russia, which just a few weeks ago appeared to be dead. And it wasn’t easy, with talks almost falling apart late last week because of resistance from Mexico. They came back from the brink after a weekend of urgent diplomacy, and an intervention from President Donald Trump, helped to broker the final compromise.
“Unprecedented measures for unprecedented times,” said Ed Morse, a veteran oil watcher who is head of commodities research at Citigroup Inc. “Unprecedented in historical discussions of production cuts, the U.S. played a critical role in brokering between Saudi Arabia and Russia for the new OPEC+ accord.”
OPEC+ will cut 9.7 million barrels a day -- just below the initial proposal of 10 million. “We have demonstrated that OPEC+ is up and alive,” said Saudi Energy Minister Prince Abdulaziz bin Salman minutes after the deal was done. “I’m more than happy with the deal.”
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.
Brent futures jumped 8% in the first seconds of trading on Monday in Asia, but were down 2% at $30.85 a barrel at 10:35 a.m. in London.
