Historic Opec+ deal to cut production, with US also agreeing to reduce oil output

Week-long talks almost fell with resistance from Mexico

An Austrian Armed Forces soldier wearing a face mask patrols in front of the Organization of Petroleum Exporting Countries (OPEC) headquarters in Vienna, Austria, April 9, 2020.  EPA

The world’s top oil producers pulled off a historic deal on Sunday to cut global crude output.

After a week of bilateral talks and four days of video conferences with government ministers from around the world, including the Opec+ alliance and Group of 20 nations, an agreement finally emerged to tackle the effect of the global pandemic on demand.

The talks almost fell apart because of resistance from Mexico, but came back from the brink after a weekend of urgent diplomacy as the clock ticked down to the opening of the market.

Opec+ will cut 9.7 million barrels a day, just below the initial proposal of 10 million.

The US, Brazil and Canada will contribute another 3.7 million barrels as their production declines.

Opec officials were still waiting to hear more from Group of 20 members, although it was not clear if those numbers would represent real cuts or production idled because of market forces.

Mexico appeared to have won a diplomatic victory as it will only be required to cut 100,000 barrels, less than its pro-rated share.

With the virus paralysing air and ground travel, demand for petrol is collapsing and crude prices have plunged to 18-year lows.

That threatened the future of the US shale industry and the economies of oil-dependent states, while piling more challenges on to central banks fighting the fallout from the pandemic.

The question now for the oil market is whether the cuts will be enough to stabilise prices.

With countries around the world extending their lockdowns, the death toll mounting in New York, and unemployment exploding in America, the oil market is now far more worried about consumption than supply.

Opec acknowledged the challenge, with its chiefs warning ministers that demand fundamentals were “horrifying".

West Texas Intermediate crude plunged more than 9 per cent on Thursday as traders anticipated that the cuts would not go far enough.

Oil markets were closed on Friday for Easter.

For the deal to be clinched, US President Donald Trump had to intervene, after Mexican President Andres Obrador, a left-wing populist who has pledged to bolster Mexico’s oil-production prowess, baulked at the terms.

Talks between Saudi Arabia and Mexico continued through the weekend and Mexico appeared to have had its way.

Opec+ had been seeking 5 million barrels a day of output reductions from producers in the G20.

But the group did not mention any curbs in its communique after a meeting on Friday, saying only that it would take measures to ensure stability.