This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2020/apr/10/opec-russia-reduce-oil-production-prop-up-prices

The article has changed 6 times. There is an RSS feed of changes available.

Version 0 Version 1
Opec, Russia and other oil producers make draft deal to cut output Oil prices drop amid fears Opec+ deal will fail to counter coronavirus drop in demand
(about 11 hours later)
Mexico holds out against scale of reductions which would amount to 10m barrels per day, or 10% of global supply Deal also at risk from Mexican opposition to planned cuts of around 10% of global supply
Opec countries and allies led by Russia have agreed in principle to cut their oil output by more than a fifth and said they expected the United States and other producers to join in their effort to prop up prices hammered in the coronavirus crisis. Oil prices dropped on Friday as traders feared that an Opec deal to slash global supplies by 10% would not offset a historic drop in demand due to the coronavirus outbreak.
But there was some confusion after Mexico apparently refused to sign up to its share of cuts under the deal, which would have been 400,000 barrels per day. The Mexican energy minister Rocio Nahle Garcia tweeted that her country had suggested a cut of 100,000 barrels. There were also concerns that Mexico could derail the deal after refusing to sign up to its share of cuts following a marathon overnight meeting of the world’s major oil producers.
The cuts by the oil cartel plus its allies, a group known as Opec+, amount to 10m barrels per day (bpd), or 10% of global supplies. Reductions of 5m bpd are expected to come from other nations to help navigate the deepest oil crisis in decades. The price of Brent crude fell nearly 2.5% to $32 per barrel on Friday, despite news that the oil cartel and allies – known as Opec+ – had reached a deal that would end a price war between Saudi Arabia and Russia that threatened to flood the market with more oil than the world could use.
Global fuel demand has plunged by around 30m bpd, or 30% of global supplies, as steps to fight the virus have grounded planes, cut vehicle usage and curbed economic activity. But Mexico cast doubt over Opec’s plans, afterapparently refusing to sign up to its share of cuts, which would have been 400,000 barrels per day (bpd). The country instead offered to cut 100,000 bpd.
An unprecedented 15m bpd cut still would not remove enough crude to stop the world’s storage facilities quickly filling up. And far from signalling any readiness to offer support, the US president, Donald Trump, has threatened Opec with sanctions if it does not fix the oil market’s problem of oversupply. Riyadh and Moscow were expected to press Mexico to sign the accord during a video conference between G20 energy ministers on Friday.
Trump, who has said US output was already falling due to low prices, warned Riyadh it could face tariffs on its oil if it did not cut enough to help the US oil industry, whose higher costs have left it struggling with low prices. The cuts by the oil producer group are expected to reduce global supplies by 10%, or 10m bpd, in an effort to raise prices which hit an 18-year low of $22 per barrel last month. It will also push other oil-producing states, including the US, to cut a further 5m bdp to help navigate the deepest oil crisis in decades.
A White House aide said Trump had held a call with Russian president Vladimir Putin and King Salman of Saudi Arabia after a US official said the move by Opec+ sent an “important signal” to the market. Global oil fuel demand has plunged by as much as 30% or 30m bdp during the coronavirus outbreak, as steps to fight the disease have grounded planes, cut vehicle usage and curbed economic activity.
Both Opec and Russian officials have said the scale of the crisis required involvement of all producers. Even if Opec+ succeeded in reducing output by 15m bpd, it may not be enough to prop up prices while demand continues to drop during the coronavirus lockdown. Despite the oil cartel’s best efforts, global storage facilities could still quickly fill up.
“We are expecting other producers outside the Opec+ club to join the measures, which might happen tomorrow, during G20,” Kirill Dmitriev, head of Russia’s wealth fund and one of Moscow’s top oil negotiators, told Reuters. Analysts from Goldman Sachs are forecasting that the coronavirus crisis will slash demand by 19m bpd in April and May. “Such cuts, if agreed upon tomorrow, would still be too little and too late to prevent a decline in prices in coming weeks as storage capacity becomes saturated.”
Thursday’s Opec+ talks will be followed by a call on Friday between energy ministers from the G20 major economies, hosted by Saudi Arabia. But Stephen Innes, chief global markets strategist at AxiCorp, an online currency trading platform, said that while the deal will only partially offset the decline in oil prices “that’s what it was supposed to do.”
Brent oil prices, which hit an 18-year low last month, were around $32 a barrel on Thursday, half their level at the end of 2019. “The storm clouds for oil prices will only completely dissipate when lockdowns are lifted,” he added.
Sources said the cuts would be gradual, as the group seeks to overcome resistance from the United States, whose involvement they see as vital to a deal. US officials have already said output would fall naturally over two years. Innes also said that worries over Mexico’s refusal to sign the Opec+ deal were overblown. “Mexico’s secretary of energy Rocío Nahle was annoyed about being held over a barrel – as Saudi Arabia was trying to strong-arm a commitment – and rightly so she was. But the amount of ink being spilled suggesting the oil deal will fall apart on 300,000 barrels, 3% of the total cut, is flat out absurd.”
The United States, whose output has surged to surpass Saudi and Russian production since it began large-scale fracking, was invited to Thursday’s Opec+ talks, but it was not clear whether it had joined the video conference. Brazil, Norway and Canada were also invited. The US president, Donald Trump, who has said US output was already falling due to low prices, has also warned Riyadh it could face tariffs on its oil if it did not cut enough to help the US oil industry, whose higher costs have left it struggling with low prices.
In a sign that Opec+ was struggling to win broader support, Canada’s main oil province, Alberta, said output had already dropped and that it had not been asked by Opec for more cuts. The province said it backed the US idea for tariffs on imported crude. Both Opec and Russian officials have said the scale of the crisis required involvement of all producers. “We are expecting other producers outside the Opec+ club to join the measures, which might happen … during G20,” Kirill Dmitriev, head of Russia’s wealth fund and one of Moscow’s top oil negotiators, told Reuters.
The US, whose output has surged to surpass Saudi and Russian production since it began large-scale fracking, was invited to Thursday’s Opec+ talks, but it was not clear whether it had joined the video conference. Brazil, Norway and Canada were also invited.