OPEC + announces unprecedented pumping cut to ease global market

By Katya Golubkova, Rania El Gamal and Ahmad Ghaddar

BAKU / DUBAI / LONDON, Apr 12 (Reuters) – OPEC and its Russian-led allies agreed on Sunday to a drastic cut in production to sustain oil prices, which were sunk by the coronavirus pandemic and oversupply, in a historic pact with other exporting countries that they said will imply a 20% drop in global supplies.

Measures to flatten the coronavirus spread curve have destroyed fuel demand and barrel prices for crude oil on the international market, putting large exporters under pressure and affecting the US shale industry, which is more vulnerable to its high extraction costs.

The group, known as OPEC +, agreed to reduce production by 9.7 million barrels of oil per day (bpd) in the period from May to June, after four days of frenetic negotiations marked by pressure from the President of the United States. Donald Trump, to take actions that safeguard the market.

The largest oil supply decline pact in history, four times as deep as the previous record of cuts in 2008, will allow producing countries to slowly relax their restrictions after June, although the commitment will remain in place until April 2022. .

“The grand OPEC + deal is ready. This will save hundreds of thousands of jobs in the US energy sector,” Trump wrote on Twitter, thanking Russia’s President Vladimir Putin and King Salman of Saudi Arabia for collaborating. in conversations.

“I just talked to them … it’s a great deal for everyone,” he said.

OPEC + said in a draft statement to which Reuters had access that it expected total production cuts to exceed 20 million bpd globally, or 20% of global supplies, as of May 1.

Three OPEC + sources said the effective pumping reductions would include contributions from countries outside the bloc, deeper cuts by alliance members, and strategic purchases of inventories from major global consumers.

Sources said that non-OPEC + states like Brazil, Canada, Norway and the United States will contribute a joint extraction cut of 3.7 million bpd. The Persian Gulf countries that make up the cartel will lower their production more aggressively, the sources added.

In addition, they indicated that the International Energy Agency (IEA) would announce purchases of stocks from member countries on Monday that would reach 3 million bpd in the next two months. The organization did not immediately respond to requests for comment.

Trump had threatened the de facto OPEC leader, Saudi Arabia, to apply tariffs on his oil sales and other punitive measures if he failed to help alleviate global oversupply, as low oil prices have created serious complications for the industry. of unconventional hydrocarbons from the United States.

Canada and Norway have expressed their willingness to join the cut, and the United States – where the law makes it more difficult to act in coordination with cartels like OPEC – stated that its pumping rate would drop abruptly this year, without the need for commitments, due to at low prices.

The signing of an OPEC + agreement had been postponed since Thursday to extend talks with Mexico, which finally announced that it would contribute a reduction of 100,000 bpd since May.

Mexican President Manuel López Obrador said Friday that Trump had offered him that the United States would cut its supplies in support of its neighbor, an unusual offer for the Republican president.

Trump said Washington would help Mexico by “taking some of the lag” and that he would later be paid, although it was unclear how this deal would work.

Global demand for crude oil is estimated to have dropped by a third, as more than 3 billion people are confined to their homes to prevent more rapid spread of COVID-19.

(Reuters report by OPEC Team, Alex Lawler in London, Lamine Chikhi in Algers; Nailia Bagirova in BAKU, Sharay Angulo in Mexico City; Katya Golubkova in MOSCOW and Tamara Vaal in NUR-SULTAN; written by Andrey Ostroukh and Dmitry Zhdannikov. Edited in Spanish by Marion Giraldo)