OPEC, Russia and other oil-producing states agreed on Sunday to cut barrel production by ten per cent to support oil prices after demand dropped due to the coronavirus pandemic.
The OPEC+ group, agreed to reduce output by 9.7 million barrels per day (bpd) for May and June, and to continue curbs on production for two years until April 2022.
According to the Financial Times, the cuts are set to be more than twice those made by the group during the global financial crisis.
The move comes after four days of marathon talks, and following pressure from US President Donald Trump to stem the price decline.
Trump had threatened OPEC leader Saudi Arabia with oil tariffs if it did not fix the market's oversupply problem, which had pushed down prices, leaving the US oil industry in distress.
Global oil demand is estimated to have dropped by a third as more than three billion people worldwide are locked down in the homes because of the coronavirus outbreak.
In response to the deal, Trump tweeted, "the big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. 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!".
The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. 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!
— Donald J. Trump (@realDonaldTrump) April 12, 2020
Russia and Saudi Arabia had been locked in a price war, as a dispute over who was to blame for plunging prices of crude oil intensified. Both are now set to cut production in efforts to protect the market, with Saudi Arabia alone set to cut production to 8.5 million barrels a day – the country's lowest since 2011.
"Unprecedented measures for unprecedented times", Ed Morse, a veteran oil watcher and head of commodities research at Citigroup, was quoted as saying by Bloomberg.
Despite the cuts, banks Goldman Sachs and UBS said last week that a 15 per cent cut in supply might not be enough to stem the price decline, adding that Brent prices may fall to $20 per barrel from $32 at the moment, and $70 at the start of the year.
Meanwhile, Saudi Arabia has delayed announcing pricing for its May crude exports. The announcement, which was originally expected on 5 April, is likely to be declared today, according to a report from Bloomberg.