Global oil supply could be cut by as much as 20 percent to bolster prices that have collapsed due to the coronavirus pandemic and a fight over market share, officials say.
OPEC+, a group of 23 oil-producing countries that includes Russia, said late on April 12 that it had agreed to reduce output by 9.7 million barrels per day for May and June, or about 10 percent of global supply.
However, U.S. and OPEC+ officials are playing up the production-cut deal after it received a tepid response from oil markets, adding involuntary output declines in the United States, Canada, and other producers to the total expected figure.
U.S. President Donald Trump said on April 13 that oil producers would cut 20 million barrels per day, nearly double the figure announced the previous day.
"Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 Million Barrels a day, not the 10 Million that is generally being reported," Trump tweeted.
U.S. Energy Secretary Dan Brouillette told Fox Business that the OPEC+ deal is only “half the story” as oil production in dozens of countries will fall due to low prices.
“What we will see is production declining over the next few months as the world deals with this COVID-19 pandemic. When you add up all the production cuts around the world, we’re going to be closer to 20 million barrels a day coming off the market,” he said.
Meanwhile, Saudi Energy Minister Prince Abdulaziz bin Salman said nations in the Group of 20 top economies had pledged to cut about 3.7 million barrels per day and that strategic-reserves purchases would take a total of about 19.5 million barrels per day off the market.
The leaders of Russia, the United States, and Saudi Arabia engaged in a series of phone calls in recent weeks to support an oil-price floor, in a dramatic turnaround after Moscow and Riyadh engaged a price and market-share war following the collapse of a previous OPEC+ deal in March.
The Russian and Saudi move in March was in part driven by a desire to hit indebted U.S. shale-oil producers who have gained market share in recent years and whose production costs are higher than current oil prices.
However, the price war devastated oil companies and left yawning budget holes and tumbling currencies in major oil producers from Central Asia and Russia to the Middle East and Africa.
Kirill Dmitriev, head of Russia's sovereign wealth fund RDIF and a top oil negotiator, said on April 13 that the oil deal was an example of Moscow and Washington “working together for the best of our nations.”
Russian Energy Minister Aleksandr Novak said Russia and Saudi Arabia would cut their daily oil output by 2.5 million barrels each under the agreement. He said the agreement would prevent oil prices from collapsing.
Iranian Oil Minister Bijan Zanganeh told state television that Kuwait, Saudi Arabia, and the United Arab Emirates vowed to cut another 2 million barrels of oil production per day between them in addition to the April 12 deal.
Still, the planned production cuts fall short of completely offsetting an estimated 30 million barrel-per-day drop in worldwide oil consumption caused by the coronavirus epidemic.
Global oil demand has collapsed as coronavirus lockdowns have largely halted global travel and slowed down other energy-consuming sectors such as manufacturing.
The global oil price rose marginally on April 13, with Brent futures around $32 a barrel and U.S. West Texas Intermediate (WTI) hovering around $23.
Market analysts expect any boost to be short-lived, as the agreement appears to have failed to give investors cause for lasting optimism amid the ongoing coronavirus pandemic.