Oil prices rise as output cut deal attained
Oil prices jumped on Monday after major oil producers agreed on Sunday to slash oil output by 9.7 million barrels per day, or bpd, after four days of marathon talks.
The deal to tighten the taps on supply is aimed at shoring up the battered energy market amid the coronavirus pandemic.
The members of the Organization of the Petroleum Exporting Countries and other oil-producing states, known as OPEC+, pushed through to reach the deal to cut their output for May and June, Kuwait’s Oil Minister Khaled Al-Fadhel said on Twitter.
Under the agreement, Russia and Saudi Arabia will each cut daily oil output by 2.5 million bpd from 11 million bpd, while other nations will do so by 23 percent.
Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining the budgets of oil producers and hammering the United States’ shale industry, which is more vulnerable to low prices due to its higher costs.
Russia’s RT TV network said the cuts will protect oil producers from falling prices, triggered both by de facto OPEC leader Saudi Arabia flooding the global markets with oil and by falling demand amid the pandemic.
The price of futures contracts for Brent crude oil for June delivery climbed 4.4 percent to $32.85 per barrel on London’s ICE on Monday.
The Reuters news agency quoted OPEC+ sources as saying they expected the total oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective from May 1.
US President Donald Trump welcomed the deal, saying it will save hundreds of thousands of US energy jobs. “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States,” Trump tweeted.
“I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”
US Secretary of Energy Dan Brouillette called it a “historic deal”.
American Petroleum Institute President and CEO Mike Sommers said the agreement is significant because it “will foster increased stability in energy markets to the benefit of both American energy consumers and producers”.
Oil prices have fallen by more than 50 percent since early this year due to the pandemic and a price war between Saudi Arabia and Russia.
Almost 40 percent of US oil and natural gas producers face insolvency within the year if crude prices remain near $30 a barrel, according to a survey by the Federal Reserve Bank of Kansas City.
Russian President Vladimir Putin said the agreement will help to stabilize the global markets and ensure sustainability of the world economy in general.
With the OPEC+ deal, Russia’s economic recovery is expected to begin in the third quarter of this year, Russian experts said.
In the third quarter, “the Russian economy will begin to overcome the negative effects of declining oil prices and coronavirus. We expect a recovery trend”, Russian economist Andrey Klepach said.
The output deal will help to avoid chaos in the oil market and raise oil prices, Klepach said.