Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the U.S. shale industry, which is more vulnerable to low prices due to its higher costs.
The group, known as OPEC+, said it had agreed to reduce output by 9.7 million barrels per day (bpd) for May and June, after four days of talks and following pressure from U.S. President Donald Trump to arrest the price decline.
OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1. OPEC had the same figure in its draft statement but removed it from the final version.
The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.
In a statement from the White House, Trump welcomed the commitment by Saudi Arabia and Russia “to return oil production to levels consistent with global energy and financial market stability.”
Earlier on Twitter, Trump wrote: “The big Oil Deal with OPEC+ is done. This will save hundreds of thousands of energy jobs in the United States.”
Thanking Russian President Vladimir Putin and Saudi King Salman for pushing the deal through, Trump added: “I just spoke to them... Great deal for all,”
Oil demand has dropped by around a third because of the coronavirus pandemic. Oil prices jumped more than $1 a barrel in Monday trading after the agreement, but gains were capped amid concern that it would not be enough to head off oversupply with the coronavirus pandemic hammering demand.
Total global cuts will include contributions from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.
Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters that real effective cuts by OPEC+ would total 12.5 million bpd because Saudi Arabia, the United Arab Emirates and Kuwait would cut supplies steeper given higher output in April.
Three OPEC+ sources said non-members Brazil, Canada, Indonesia, Norway and the United States would contribute 4 million to 5 million bpd.
Three OPEC+ sources said the International Energy Agency (IEA), the energy watchdog for the world’s most industrialised nations, would announce purchases into stocks by its members to the tune of 3 million bpd in the next couple of months.
The IEA said it would provide an update on Wednesday when it releases its monthly report. The United States, India, Japan and South Korea have said they could buy oil to replenish reserves.