Saudi, Russia outline record oil cut in bid to prop up crude prices

OPEC, Russia and other allies outlined plans on Thursday to cut their oil output by more than a fifth and said they expected other producers to join in their effort to prop up prices hammered by the coronavirus crisis.

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. Discussions among top global energy ministers will resume on Friday.

The planned output curbs by OPEC+ amount to 10 million barrels per day (bpd) or 10 per centof global supplies, with another fivemillion bpd expected to come from other nations to help deal with the deepest oil crisis in decades.

Global fuel demand has plunged by around 30 million bpd, or30 per centof global supplies, as steps to fight the virus havegrounded planes, cut vehicle usage and curbed economic activity. An unprecedented 15 million bpd cut still won't removeenough crude to stop the world's storage facilities quicklyfilling up.

Both OPEC and Russian officials have said the scale of thecrisis required involvement of all producers.

"We are expecting other producers outside the OPEC+ club to join the measures, which might happen tomorrow during G20," thehead of Russia's wealth fund and one of Moscow's top oilnegotiators, Kirill Dmitriev, told Reuters.

Thursday's OPEC+ talks will be followed by a call on Fridaybetween energy ministers from the Group of 20 (G20) majoreconomies, including Canada.OPEC and Russian sources saidthey expected other producers to add five million bpd to cuts.

Alberta not asked to cut, says premier

Canada is the world's fourth-largest oil producer, but Alberta Premier JasonKenneysaid Thursdaythe province had not been asked to constrain energy output.

Kenney said Alberta has been curtailing production for more than a year because of a lack of pipeline capacity. Production is falling even further due to low oil prices, he added.

"I think that the main concern in OPEC+is that North American producers not surge production to occupy the space created by their own curtailment should they do it,"Kenneytold reporters.

FederalNatural Resources Minister Seamus O'Regansaid in an statement to CBC News that he has spoken with his counterparts inAlberta, Saskatchewan and Newfoundland and Labrador, andtheyagreed to keep working together to address the instability affecting the energy sector.

"Canada is heading into anunprecedented meetingof G20 energy ministers this Friday, and a united approach puts us in the best position to support our workers and our economy," O'Regan said.

Brent oil prices, which hit an 18-year low last month, were trading around $32 US a barrel on Thursday, half theirlevel at the end of 2019.

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OPEC+, which groups the Organization of the Petroleum Exporting Countries, Russia and others, would cutoutput by10 million bpd in May to June, OPEC+ documents showed.

All members will reduce their output by 23 per cent, with SaudiArabia and Russia each cutting 2.5 million bpd and Iraq cuttingover onemillion bpd.

Gradual approach

OPEC+ would then ease cuts to eightmillion bpd from July toDecember and relax them further to sixmillion bpd from January2021 to April 2022, the documents showed.

OPEC+ sources said they expected cuts from the United Statesand others to amount to about fivemillion bpd but the OPEC+ statement made no mention of such a condition.

The sources said cuts would be gradual, as the group seeksto overcome resistance from the United States, whose involvementthey see as vital to a deal. U.S. officials have already saidoutput would fall naturally over two years.

"Whichever way you slice it, this is a big, big production cut, and I think it will prevent things from falling apart as quickly as they would have otherwise," said Rory Johnston,the managing director at Toronto-based market research firm Price Street, of Thursday's agreement.

"But I still think that this leaves the oil market in a very precarious position."

Johnston said he'll bewatching for the outcome of discussions among the G20 on Friday. He said that could include something fromCanada, although the early indications are thatmight not be required.

Several U.S. states could order private companies to limitproduction under rarely used powers.

The oil regulator in Texas,the largest producer among U.S. states with an output of about fivemillion bpd, meets on April 14 to discuss possible curbs.

Before Thursday's talks, Moscow and Riyadh had been at odds overwhat level of production to use to calculate reductions, after Saudi Arabia hiked its supply in April to a record 12.3 million bpd, up from below 10 million bpd in March. Russian output,meanwhile, has been running about 11.3 million bpd.

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The two nations fell out during an acrimonious meeting inVienna in March, when a previous production deal collapsed.

The two sides agreed on Thursday that cuts would be madefrom an 11 million bpd baseline for both countries, OPEC+documents showed.

"We have managed to overcome differences. It will be a veryimportant deal. It will allow the oil market to start on a pathto recovery," said Dmitriev, who last month was the firstofficial to propose a deal involving members other than OPEC+.