Oil price war ends with historic Opec+ deal to slash production

Bloomberg

The world’s top oil producers pulled off a historic deal to cut global petroleum output by nearly a 10th, putting an end to the devastating price war that brought the energy industry to its knees.
After a week-long marathon of bilateral calls and video conferences of ministers from the Opec+ alliance and the Group of 20 nations, an agreement finally emerged to tackle the impact of the pandemic on oil demand.
Prices rose about 1% to around $32 a barrel in London after swinging wildly in the first few minutes of trading following the deal. The focus now shifts to whether the cut will be enough to dent the massive glut that keeps growing as the virus shuts down the global economy.
The talks had almost fallen apart late last week — amid resistance from Mexico — but came back from the brink after a weekend of urgent diplomacy. President Donald Trump intervened, helping 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 US played a critical role in brokering between Saudi Arabia and Russia for the new Opec+ accord.”
The big Oil Deal with Opec Plus is done. 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!
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,” Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg News in an interview 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 towards $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 before dropping more than 1% in a rapid reversal. By 8:13 am in London they were up 0.8% again at $31.72 a barrel.
With the virus paralysing air and ground travel, demand for gasoline, jet-fuel and diesel is collapsing. That threatened the future of the US shale industry, the stability of oil-dependent states and squeezed the flow of petrodollars through an ailing global economy.
The US, Brazil and Canada will contribute another 3.7 million barrels on paper as their production declines and other G20 states will contribute 1.3 million. Still, the G20 numbers don’t represent real voluntary cuts, but rather reflect the impact that low prices have already had on output and would take months, perhaps more than a year, to come into effect.
“Opec+ started the fire, and it was their responsibility to put it out,” Jason Kenney, the premier of Alberta, Canada’s biggest oil-producing province, said in a Twitter post. “Many challenging months ahead with very low demand and huge inventories, but at least now there is path to recovery.”
Mexico won a diplomatic victory as it will only cut 100,000 barrels — less than its pro-rated share, having blocked the deal since the plan was first revealed on Thursday. Now its future inside OPEC+ is uncertain, as it’s expected to decide over the next two months whether to leave the alliance, delegates said.
The biggest winner appears to be Trump, who refused to actively cut American oil production and personally brokered the deal over phone calls with Mexican President Andres Manuel Lopez Obrador, Russian President Vladimir Putin and King Salman of Saudi Arabia.
Trump became the first American president to push for higher oil prices in more than 30 years, reversing his personal opposition to the cartel.
The production restraints are set to last for about two years, though not at the same level as the initial two months. Copying the model adopted by central banks to taper off their bond buying, OPEC will also reduce the size of the cuts over time. After June, the 10 million barrel cut will be tapered to 7.6 million a day until the end of the year, and then to 5.6 million through 2021 until April 2022.
The deal doesn’t take effect until May 1, leaving OPEC+ countries, which have significantly increased production over the last month, able to continue flooding the market for nearly another three weeks.
Goldman Sachs Group Inc. called the cuts “too little and too late,” saying they’d only lead to an actual reduction of about 4.3 million barrels a day from first quarter levels. “Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 million barrels a day average April-May demand loss due to the coronavirus,” the bank’s analysts wrote in a report.
Under the terms, Saudi Arabia will cut its production just a fraction under 8.5 million barrels a day — its lowest level since 2011. The OPEC+ deal measures the Saudi cut from a baseline of 11 million barrels a day, the same as Russia.

Trump, Putin, King Salman pleased with Opec efforts to stabilise oil markets
RIYADH / WAM

The leaders of Saudi Arabia, the United States and Russia held a conference call to review the results of the Opec+ group meeting, the Saudi Press Agency (SPA) reported.
The Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud of Saudi Arabia, US President Donald Trump, and Russian President Vladimir Putin all expressed during the call on Sunday their “great satisfaction with the results of the efforts exerted to stabilise global oil markets and maintain it by the producing countries.”
“The leaders stressed the need for producing countries to continue to shoulder their responsibilities and commit to them in order to stabilise oil markets and support the global economy”, added SPA.
During the OPEC + meeting which was held last Thursday, OPEC and non-OPEC oil producing countries reaffirmed their continued commitment in the Declaration of Cooperation to achieve and sustain a stable oil market, and a deal to reduce production by 10 million barrels per day in May and June was also reached.