Oil producers in the OPEC+ group, led by Saudi Arabia and Russia, were expected to pressure Mexico on Friday to seal an accord for a collective cut in output of 10 million barrels per day, before asking other nations for a further 5 million bpd of cuts.
The United States has encouraged global cooperation to bolster an oil market that collapsed as the coronavirus pandemic accelerated in March and producers resorted to a price war after failing to agree on how to prop up prices.
Oil prices tumbled on Thursday despite OPEC+ nearing agreement as the lockdowns ordered across the world sucked life out of the global economy, and traders reckoned that even a combined reduction of 15 million bpd would be too little to stabilise the market.
Markets were closed for the Good Friday holiday in major centres. But on Thursday, Brent oil prices LCOc1, which hit an 18-year low last month, were trading around $32 a barrel, half their level at the end of 2019.
Following talks on Thursday, OPEC, Russia and other allies outlined plans to cut output by more than a fifth and said they expected the United States and other producers to join in their effort to bolster prices.
In a separate phone call after the meeting, Saudi Arabia’s King Salman, U.S. President Donald Trump and Russian President Vladimir Putin reviewed the importance of cooperation between oil producing countries, Saudi state news agency SPA reported.
“Desire was confirmed for coordination of actions aimed at the stabilization of the global oil trade situation and the mitigation of the negative impact from volatile oil prices on the global economy,” the Kremlin said following the call with other producers.
But the group, known as OPEC+, said a final agreement was dependent on Mexico signing up to the pact after it balked at the production cuts it was asked to make.
“I hope (Mexico) comes to see the benefit of this agreement not only for Mexico but for the whole world. This whole agreement is hinging on Mexico agreeing to it,” Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters by telephone.
During the talks, Mexico proposed reducing its oil output by 100,000 barrels per day (bpd) in the next two months, and would reduce output to 1.681 million bpd from 1.781 million bpd reported in March, Energy Minister Rocio Nahle said in a tweet on Thursday. Mexico was being asked to cut by 400,000 bpd
STORAGE NEAR BRIMFUL
OPEC+ documents showed the group plans to collectively cut by 10 million bpd in May to June. All members would reduce output by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd.
Those reductions were based on production levels prevailing earlier though. Saudi Arabia ramped up its output in March after earlier talks to support the oil market failed, and it will now be making a cut of 3.8 million bpd if the accord is reached.
Under the plans, OPEC+ would ease cuts to 8 million bpd from July to December and relax them further to 6 million bpd from January 2021 to April 2022, the documents showed.
The United States, whose output has surged to surpass Saudi and Russian production, was invited to Thursday’s OPEC+ talks but it was unclear if it had joined the video conference. Brazil, Norway and Canada were also invited.
Saudi Arabia will expand efforts to support the global oil industry when it hosts an extraordinary meeting by video conference at 1200 GMT on Friday for energy ministers from the Group of 20 major economies.
Prince Abdulaziz said he expects that other producers will join in the global effort to reduce oil supply to stabilise oil markets, but said: “They will do it in their own way.”
Goldman Sachs doubted whether the cuts being discussed would be enough to offset slumping consumption, estimating that the coronavirus would slash demand by 19 million bpd in April-May.
Analysts at the U.S. investment bank said: “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.”