Saudi Arabia and Russia ended their oil price war on Sunday by finalising a deal to make the biggest oil production cuts in history, following pressure from US President Donald Trump to support an energy sector ravaged by the coronavirus pandemic. Opec producers said the cuts deal would in total remove around a fifth of global oil supply, although this would include declines forced on other producers, like those in the battered US shale sector, by the recent oil price collapse.
Even without the volumes to be contributed by those countries, the cuts announced by Opec on Sunday evening of 9.7m barrels a day are more than double those made by the cartel during the global financial crisis. Mr Trump immediately welcomed the announcement, saying it would protect American jobs, just hours before oil markets were due to reopen after Easter weekend.
The agreement by the Opec+ group, first brokered on Thursday, was backed by the US and G20 on Friday but had threatened to unravel after Mexico – a relatively small oil producer – angered Saudi Arabia by seeking an exemption from the deal. But following US pressure and prolonged negotiations, Saudi Arabia conceded the point, allowing Mexico to cut by a smaller margin than its Opec+ peers. That resulted in the overall curbs from the Opec+ group amounting to 9.7m b/d, slightly less than the 10m b/ d initially pledged, or roughly 10 per cent of pre-crisis demand.
The cuts will begin in May for two months and then diminish in size before expiring in April 2022. The cartel’s big Gulf producers, Saudi Arabia, the United Arab Emirates and Kuwait, will deepen their own cuts, adding to the total. The inclusion of declines by non-Opec producers in the total cuts – for an aggregate close to 20m b/d, or nearly 20 per cent of global supply – may not reassure traders that have tried to weigh the loss of up to 30 per cent of global demand as economies have shut down to slow the spread of the coronavirus.
The deal, while historic for its size alone, also marks a startling pivot for Mr Trump, a frequent critic of Opec in the past, who pushed the cartel to make cuts designed to support oil prices. Mr Trump has previously blamed Opec for raising fuel prices for the average US consumer.
“The big Oil Deal with Opec Plus is done,” Mr Trump said on Twitter on Sunday. “This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”