OPEC and allies led by Russia, a group known as OPEC+, 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.
OPEC+ said it had agreed to reduce output by 9.7 million bpd for May and June, after four days of talks and following pressure from U.S. President Donald Trump to arrest the oil price decline.
Prince Abdulaziz bin Salman told reporters via a conference call that G20 nations outside the OPEC+ alliance had pledged to cut about 3.7 million bpd of oil supply, while oil purchases into reserves (SPRs) were seen at 200 million barrels over the next couple of months, according to the IEA.
Prince Abdulaziz also said the kingdom could cut oil output below its current quota of 8.5 million bpd if there was a need by the market over the coming months and if any reductions were done collectively with other producers on a pro-rata basis.
OPEC+ meets next in June via teleconference to decide on output policy.
“We have to watch what is happening with demand destruction or demand improvement, depending on how things may evolve,” Prince Abdulaziz said.
“This is a situation where every day the numbers change … you have to maintain being vigilant about how these things may progress,” he said, adding there was still “uncertainty related with the virus and its impact”.
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.
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 virus hammering global demand. [O/R]
But the minister downplayed the drop in oil prices on Monday, saying that the cuts were the reason for the rally in oil prices before the meeting in anticipation of the cuts.
“It’s the typical deal you know: buy the rumour, and sell the news.”