By Javier Blas, Salma El Wardany and Grant Smith on 4/9/2020
LONDON (Bloomberg) – Saudi Arabia and Russia ended a devastating oil price war on Thursday, agreeing to slash output together with other members of the OPEC+ alliance in an effort to lift the market from a pandemic-driven collapse.
The tentative deal came after strong pressure from U.S. President Donald Trump and American lawmakers, who fear thousands of job losses in the U.S. shale patch, not to mention Wall Street chaos. The price crash has also threatened the stability of oil-dependent nations and forced companies from Exxon Mobil Corp. to small independents to rein in spending.
OPEC and its allies, meeting by video conference, agreed to cut production by about 10 million barrels a day in May and June, delegates said, asking not to be identified ahead of an official statement. Saudi Arabia and Russia, the biggest producers in the group, will each take output down to about 8.5 million a day, with all members agreeing to cut supply by 23%, one delegate said.
“Both Saudi and Russia were going to have to cut anyway, and these cuts allow them to win political points too,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.
While the headline cut equates to a historic reduction of about 10% of global supply, it makes up just a fraction of the demand loss, which some traders estimate at as much as 35 million barrels a day.
Brent crude erased earlier gains, trading down 2.3% at $32.10 a barrel as of 7:23 p.m. in London. Prices have tumbled by half this year as the spread of the coronavirus coincided with a bitter price war that saw producers flood the market.
“Covid-19 is an unseen beast that seems to be impacting everything in its path,” Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said in a speech at the online gathering. “The supply and demand fundamentals are horrifying” and the expected oversupply, particularly in the second quarter, is “beyond anything we have seen before.”
Barkindo urged action to tackle the growing surplus, which he estimated at 14.7 million barrels a day in the second quarter. And he wants action not only from OPEC+ producers but from nations beyond the alliance.
On top of the planned 10 million-barrel reduction, OPEC+ is seeking cuts of as much as 5 million a day from Group of 20 countries, delegates said.
A contribution from the G-20, whose energy ministers are set to hold talks on Friday, could give extra potency to efforts to revive prices. Russia has insisted that the U.S. in particular do more than just let market forces reduce its record production. Trump, meanwhile, has said America’s cut will happen “automatically” as low prices put shale in dire straits, a sentiment reiterated by his energy secretary on…