OPEC, Russia approve biggest-ever oil cut to support prices amid coronavirus pandemic

REUTERS

BAKU/DUBAI/LONDON (Reuters) – OPEC and allies led by Russia agreed on Sunday to a record cut in output to prop up oil prices amid the coronavirus pandemic in an unprecedented deal with fellow oil nations, including the United States, that could curb global oil supply by 20%.

Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the U.S. shale industry, which is more vulnerable to low prices due to its higher costs.

The group, known as OPEC+, said it had agreed to reduce output by 9.7 million barrels per day (bpd) for May and June, after four days of talks and following pressure from U.S. President Donald Trump to arrest the price decline.

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1. OPEC had the same figure in its draft statement but removed it from the final version.

The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.

In a statement from the White House, Trump welcomed the commitment by Saudi Arabia and Russia “to return oil production to levels consistent with global energy and financial market stability.”

Earlier on Twitter, Trump wrote: “The big Oil Deal with OPEC+ is done. This will save hundreds of thousands of energy jobs in the United States.”

Thanking Russian President Vladimir Putin and Saudi King Salman for pushing the deal through, Trump added: “I just spoke to them… Great deal for all,”

Oil demand has dropped by around a third because of the coronavirus pandemic. Oil prices jumped more than $1 a barrel in Monday trading after the agreement, but gains were capped amid concern that it would not be enough to head off oversupply with the coronavirus pandemic hammering demand.

Total global cuts will include contributions from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.

Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters that real effective cuts by OPEC+ would total 12.5 million bpd because Saudi Arabia, the United Arab Emirates and Kuwait would cut supplies steeper given higher output in April.

Three OPEC+ sources said non-members Brazil, Canada, Indonesia, Norway and the United States would contribute 4 million to 5 million bpd.

Three OPEC+ sources said the International Energy Agency (IEA), the energy watchdog for the world’s most industrialised nations, would announce purchases into stocks by its members to the tune of 3 million bpd in the next couple of months.

The IEA said it would provide an update on Wednesday when it releases its monthly report. The United States, India, Japan and South Korea have said they could buy oil to replenish reserves.

SEVERE DISTRESS

Trump had threatened OPEC leader Saudi Arabia with oil tariffs and other measures if it did not fix the market’s oversupply problem as low prices have put the U.S. oil industry, the world’s largest, in severe distress.

Canada and Norway had signalled a willingness to cut and the United States, where legislation makes it hard to act in tandem with cartels such as OPEC, said its output would fall steeply by itself this year because of low prices.

The Canadian government said in a statement it welcomed the OPEC+ deal, saying it was committed to achieving price certainty and economic stability.

The deal had been delayed since Thursday, however, after Mexico, worried about derailing its plans to revive heavily indebted state oil company Pemex, balked at the production cuts it was asked to make.

Mexican President Andres Manuel Lopez Obrador said on Friday that Trump had offered to make extra U.S. cuts on his behalf, an unusual offer by the U.S. leader, who has long railed against OPEC.

Trump said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not say how that would work.

A previous agreement by OPEC+ to cut production this year fell apart because of a dispute between Russia and Saudi Arabia, triggering a price war that brought a flood of supply just as demand for fuel was crushed by the coronavirus pandemic.

Global oil demand is estimated to have fallen by around 30 million bpd as more than 3 billion people are locked down in their homes due to the outbreak.

Banks Goldman Sachs and UBS predicted last week that Brent prices would fall back to $20 per barrel as cuts would not be enough to help offset severe demand destruction because of the restrictions to curb the coronavirus outbreak.

Reporting by Reuters OPEC Team, Alex Lawler in London, Lamine Chikhi in Algiers; Nailia Bagirova in Baku, Katya Golubkova in Moscow and Tamara Vaal in Nur-Sultan; Additional reporting by Stephanie Kelly in New York; Florence Tan in Singapore and David Ljunggren in Ottawa; Writing by Andrey Ostroukh and Dmitry Zhdannikov; Editing by Alex Richardson, Tom Brown and Peter Cooney

OPEC and allies agree to historic 10 million barrel per day production cut

A historic production cut agreement between OPEC and its allies, known as OPEC+, hit a roadblock after Mexico refused to agree to its share of the cuts after a marathon meeting between the oil-producing nations that lasted more than nine hours.

The other members of OPEC+, led by Saudi Arabia and Russia, earlier in the day agreed to cuts that would take 10 million barrels per day offline as the coronavirus pandemic saps demand for crude.

A statement released by OPEC following the meeting outlined details of the cuts but notes the measures were “agreed by all the OPEC and non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico.”

The extraordinary meeting kicked off around 10:30 a.m. ET and stretched into the evening.

Following the meeting, Mexico’s Secretary of Energy Rocío Nahle said in a tweet that the country would be willing to cut production by 100,000 barrels per day for the next two months. OPEC+ had reportedly asked for a cut of 400,000 barrels per day, according to Reuters.

OPEC said in a statement that the initial 10 million barrels per day cut would last in May and June, before tapering to 8 million barrels per day for the rest of the year. Beginning in January 2021, the cuts would decrease to 6 million barrels per day, which would continue through April 2022, according to the statement.

The agreement was not contingent on nations outside of OPEC+ curbing production, which some had suggested might be a stipulation for Saudi Arabia and Russia to scale back production. The group did, however, call on other major producers to cut production in a further bid to prop up prices.

Despite the record size of the potential cut, oil prices moved lower on Thursday as investors feared it would still not be enough to combat the unprecedented demand loss from the coronavirus.

“Although 10 million bpd will help the market on the short term to not fill up storage, it is a disappointing development for many, who still realize the size of the oil oversupply,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen.

U.S. West Texas Intermediate fell 9.29%, or $2.33, to settle at $22.76 per barrel. Earlier in the session, the contract had been up more than 12% trade at a session high of $28.36. International benchmark Brent crude slipped 4.14% to settle at $31.48, after earlier hitting a high of $36.40.

“Covid-19 is an unseen beast that seems to be impacting everything in its path,” OPEC Secretary General Mohammad Barkindo said at the meeting. “For the oil market, it has completely up-ended market supply and demand fundamentals since we last met on 6 March,” he added.

Earlier WTI spiked more than 12% on reports that Saudi Arabia and Russia were discussing cuts that could have taken 20 million barrels per day of global production offline.

“The market has been underwhelmed by the proposed 10m/bd production cut, perhaps because of early expectations of a massive 20m/bd reduction,” said Helima Croft, RBC’s global head of commodities research. “However we contend that it is crucial to turn off the tap off the tap in the midst of colossal demand crash and bring the price war to a swift conclusion,” she added.

Ahead of the meeting, the Street had been watching for cuts in the 10 million to 15 million barrels per day range after Trump said he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and expected them to announce a deal of that size.

CH 20200409_wti_one_day.png

“We’re optimistic that they’ll reach an agreement between the Saudis and Russians in an effort to stabilize the markets,” U.S. Energy Secretary Dan Brouillette said Thursday on CNBC’s “Squawk Box” before the OPEC+ meeting kicked off. “I think they can easily get to 10 million, perhaps even higher, and certainly higher if you include the other nations who produce oil, nations like Canada and Brazil and others. Easily, easily done,” he added.

Energy ministers from the Group of 20 major economies will convene for their own extraordinary meeting on Friday, in which Energy Secretary Dan Brouillette will participate.

The G-20 presidency said Tuesday that the meeting would be held “to foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy.”

When it comes to U.S. energy companies, Trump has commented that market forces will prevail, and on Wednesday said that producers have “already cut way back.” Brouillette echoed this on Thursday, telling CNBC that the “demand downturn has led to production cuts in the United States of about 2 million barrels per day thought the reminder of 2020.”

Oil prices crater

At OPEC’s last meeting in early March, de facto leader Saudi Arabia proposed cuts of 1.5 million barrels per day to combat falling demand. But OPEC-ally Russia rejected the proposal, sparking a price war between the two powerhouse producers. Saudi Arabia slashed its oil prices to gain market share, and also ramped up production to record levels above 12 million barrels per day.

Since early March, the outlook for oil has changed drastically as the pandemic spread, with much of the world now staying home. Oil prices sank to their lowest level in nearly two decades. WTI and Brent both fell more than 50% in March for their worst month on record. The first quarter was also the worst in history, with WTI shedding 66%, while Brent fell 65%.

Amid the decline, which has pressured highly-leveraged U.S. oil companies, Trump sought to broker a deal between Saudi Arabia and Russia. On April 2 Trump told CNBC that he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and that he expected them to announce a record production cut.

American drillers are still pumping near record levels as the world is coming to the edge of its ability to store oil. The U.S. oil industry is divided on whether it could or should contribute to production cuts in an effort to stabilize prices.

The American Petroleum Industry opposes cuts, saying such a move would harm the U.S. industry. In Texas, however, Ryan Sitton, one of the three members of the Texas Railroad Commission, has said that the state would consider participating in such a deal.

— CNBC’s Christine Wang, Ted Kemp, Sam Meredith and Nate Rattner contributed reporting.

Oil prices rise on optimism OPEC+ meeting will result in supply cut

CNBC

Reuters
KEY POINTS
  • Brent crude futures rose 1.2%, or 41 cents, to $33.25 a barrel as of 0529 GMT. The contract rose to an intra-day high of $33.90, climbing for a second day.
  • U.S. West Texas Intermediate (WTI) crude futures were up 3.3%, or 82 cents, at $25.91 a barrel, after earlier climbing by as much as 6.1%.
GP: Pumping Jacks As Oil Rally Falters In Escalating Price War
Oil pumping jacks, also known as “nodding donkeys”, operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg | Getty Images

Oil prices rose on Thursday on expectations the world’s largest oil producers would agree to cut production at a meeting later in the day as the industry grapples with a coronavirus-driven collapse in global oil demand.

Brent crude futures rose 1.2%, or 41 cents, to $33.25 a barrel as of 0529 GMT. The contract rose to an intra-day high of $33.90, climbing for a second day.

U.S. West Texas Intermediate (WTI) crude futures were up 3.3%, or 82 cents, at $25.91 a barrel, after earlier climbing by as much as 6.1%.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia — a group known as OPEC+ — are set to convene a video conference meeting on Thursday.

The meeting is expected to be more successful than their gathering in March, where they failed to agree to extend supply cuts and triggered a price war between Saudi Arabia and Russia.

Hopes of an agreement to cut between 10 million and 15 million barrels per day (bpd) rose after media reports suggested Russia was ready to reduce its output by 1.6 million bpd and Algeria’s energy minister said he expected a “fruitful” meeting.

Such a sizable reduction would be far bigger than any production cut OPEC has ever agreed on before.

“We’re waiting with bated breath,” said Lachlan Shaw, head of commodity research at National Australia Bank.

“I think there’ll be a deal, which will bring a bit of cheer in the short run. Then everyone’s attention will refocus on the fundamentals. The fundamentals are appalling,” he said.

Following the OPEC+ meeting, energy ministers from the Group of 20 major economies are set to meet to find ways to help ease the impact of the COVID-19 pandemic on global energy markets.

“If the G20 came out and talked about adding to strategic reserves, that would be taken positively,” Shaw said.

However with oil prices having lost half their value since the start of the year and oil demand forecast to slide as much as 30%, analysts are skeptical about how effective an OPEC+ cut would be in shoring up prices.

“Ultimately, the size of the demand shock is simply too large for a coordinated supply cut,” Goldman Sachs said in a note.

Moreover, given the rapidly rising oil inventories, the market is likely to be still awash with cheap oil even when demand recovers.

U.S. Energy Information Administration data on Wednesday showed crude stocks rose by 15.2 million barrels, their biggest ever one-week rise.

Oil prices jump on hopes for OPEC, Russia meeting on output cuts

CNBC

Reuters
KEY POINTS
  • Brent crude was up by 75 cents, or 2.4%, at $32.62 per barrel by 0246 GMT after falling 3.6% on Tuesday.
  • U.S. West Texas Intermediate (WTI) crude rose $1.30, or 5.5%, to $24.93 a barrel after dropping 9.4% in the previous session.
GP: Oil storage 200403 Asia
Oil storage tanks stand at the RN-Tuapsinsky refinery, operated by Rosneft Oil Co., in Tuapse, Russia, on Monday, March 23, 2020.
Andrey Rudakov | Bloomberg | Getty Images

Oil bounced back on Wednesday, with U.S. crude jumping over $1, lifted by hopes that a meeting between OPEC members and allied producers on Thursday will trigger output cuts to shore up prices that have crumbled amid the coronavirus pandemic.

Brent crude was up by 75 cents, or 2.4%, at $32.62 per barrel by 0246 GMT after falling 3.6% on Tuesday. U.S. West Texas Intermediate (WTI) crude rose $1.30, or 5.5%, to $24.93 a barrel after dropping 9.4% in the previous session.

Thursday’s video conference meeting between members of the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, is widely expected to be more successful than their gathering in early March. That ended in failure to extend cuts, and a price war between Saudi Arabia and Russia amid slumping demand.

But doubts remain over the role of the United States in any production curbs.

“Whether the United States will join output cuts is closely watched as the market’s focus remained on OPEC meeting,” said Kim Kwang-rae, commodity analyst at Samsung Futures in Seoul. “Oil prices have been volatile as the market is in wait-and-see mode.”

Saudi Arabia, OPEC member countries and Russia are likely to agree to cut output, but that accord could be dependent on whether the United States would go along with cuts. The U.S. Department of Energy said on Tuesday that U.S. output is already declining without government action.

“Saudi Arabia and Russia continue to hammer out a deal … What is clear is that the United States must be involved,” ANZ Research said in a note.

U.S. crude production, meanwhile, is expected to slump by 470,000 bpd and demand is set to drop by about 1.3 million bpd in 2020, the U.S. Energy Information Administration (EIA) said on Tuesday.

U.S. crude inventories jumped by 11.9 million barrels to 473.8 million barrels in the week to April 3, according to data from the American Petroleum Institute (API) released on Tuesday.

With a drop in fuel demand amid the virus outbreak, gasoline stocks also rose by 9.4 million barrels, marking the biggest one-week gain in the API figures since January 2017.

Official data from the EIA is due at 10:30 a.m. EDT (1430 GMT) on Wednesday.

Oil rises 3% on hopes for output cut as coronavirus ravages demand

CNBC

Reuters
KEY POINTS
  • Brent crude was up by 93 cents, or 2.8%, at $33.98 a barrel by 0431 GMT after falling more than 3% on Monday.
  • U.S. crude was up by 79 cents, or 3.03%, at $26.87 a barrel, having dropped nearly 8% in the previous session.
GP: Oil Pumping Jacks
Oil pumping jacks, also known as “nodding donkeys”, operate in an oilfield near Almetyevsk, Tatarstan, Russia, on Wednesday, March 11, 2020.
Andrey Rudakov | Bloomberg via Getty Images

Oil prices gained on Tuesday as hopes rose that the world’s biggest producers of crude will agree to cut output as the coronavirus pandemic crushes demand, even as analysts warn a global recession may be deeper than expected.

Brent crude was up by 93 cents, or 2.8%, at $33.98 a barrel by 0431 GMT after falling more than 3% on Monday. U.S. crude was up by 79 cents, or 3.03%, at $26.87 a barrel, having dropped nearly 8% in the previous session.

The world’s main oil producers including Saudi Arabia and Russia are likely to agree to cut output at a meeting on Thursday, although that would depend on the United States doing its share, sources told Reuters.

But the threat of a major recession hangs over the market due to the halt of much economic activity as a result of the coronavirus pandemic, with half the global population under some form of lockdown or social distancing measures.

“Oil producers have to cut deeply and quickly if they want to avert total saturation of oil markets,” Eurasia Group said.

Worldwide oil demand has dropped by as much as 30%, or about 30 million barrels per day, coinciding with moves by Saudi Arabia and Russia to flood markets with extra supply after an agreement on withholding output fell apart.

Oil prices slumped on Monday after Saudi Arabia and Russia delayed a meeting to agree on output cuts till Thursday.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, a grouping known as OPEC+, had been curtailing production in recent years amid a rapid expansion of U.S. output that made the country the world’s biggest crude producer.

There are also questions over whether the U.S. would join any coordinated action.

U.S. President Donald Trump said on Monday that OPEC had not asked him to push domestic oil producers to cut their production to buttress prices. He also said that U.S. output was declining in response to falling prices.

“I think it’s happening automatically but nobody’s asked me that question yet so we’ll see what happens,” the president told a press briefing on Monday afternoon.

Coordinated action by U.S. oil producers to reduce output would typically be a violation of antitrust laws.

A global recession that economists in a Reuters poll say is under way will likely be more serious than expected a few weeks ago due to the viral outbreak, the latest survey showed.

“We expect energy prices to hover around current levels until economic activity recovers,” Capital Economics said in a note.