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Oil prices volatile as major producers meet Oil producers agree to cut production by a fifth
(about 4 hours later)
Oil prices have risen, then fallen as major global oil producers try to agree production cuts to counter the slump in demand caused by coronavirus lockdowns. Opec producers and allies have agreed to cut output by more than a fifth to counter the slump in demand caused by coronavirus lockdowns.
Brent crude initially rose 3% to $33.95 a barrel, then fell back to just over $32, as investors waited to hear whether an accord would be struck. The group said it would cut output in May and June by 10 million barrels to help prop up prices. The cuts will then be eased gradually until April 2022.
Opec+, made up of Opec producers and allies including Russia, has been holding talks via video conference. Opec+, made up of Opec producers and allies including Russia, held talks on Thursday via video conference.
The failure by Opec+ to agree cuts in March triggered a slump in oil prices. Talks were complicated by disagreements between Russia and Saudi Arabia.
The group and its allies agreed to cut 10 million barrels a day or 10% of global supplies. Another 5 million barrels is expected to be cut by other nations.
It said the cuts would be eased to eight million barrels a day between July and December. Then they would be eased again to six million barrels between January 2021 and April 2022.
Oil prices slumped in March after Opec+ failed to agree cuts.
In the wake of the March meeting, Saudi Arabia and Russia moved to boost production in order to retain market share amid falling global demand.In the wake of the March meeting, Saudi Arabia and Russia moved to boost production in order to retain market share amid falling global demand.
That, together with the collapse in demand for oil amid the coronavirus pandemic, help to push oil prices to 18-year lows by the end of March.That, together with the collapse in demand for oil amid the coronavirus pandemic, help to push oil prices to 18-year lows by the end of March.
Prices have recovered some ground since then. Last week, prices jumped 20% after US President Donald Trump said he expected Saudi Arabia and Russia to end their feud.Prices have recovered some ground since then. Last week, prices jumped 20% after US President Donald Trump said he expected Saudi Arabia and Russia to end their feud.
"We're waiting with bated breath," Lachlan Shaw, head of commodity research at National Australia Bank, told Reuters. Thursday's talks will be followed by a conference call on Friday between energy ministers from the G20 countries. It will be hosted by Saudi Arabia.
"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. Kirill Dmitriev, head of Russia's wealth fund and one of Moscow's top oil negotiators told Reuters: "We are expecting other producers outside the Opec+ club to join the measures, which might happen tomorrow during G20."
India's ICICI Securities analysts Vidyadhar Ginde and Mohit Mehra said in a research note that the key to an agreement this time around was which the production level timeframe is used as a base for the cuts. The US has not committed itself to any cuts although it did say that its oil output was gradually reducing anyway due to plunging oil prices.
Saudi Arabia wants the production level as of April 2020, but other producers, including Russia, want an average of the first quarter of this year, which would be lower. President Donald Trump had warned Saudi Arabia that the US would impose sanctions if it did not cut oil production.
"Taking the April 2020 production as the base would mean no real cut from the first quarter 2020 level," the analysts said. "It would also mean rewarding Saudi Arabia for sharply boosting output at a time when global demand was plunging... and it could be a deal breaker."