OPEC and allies led by Russia agreed on Sunday to a record cut in output to prop up oil prices amid the coronavirus pandemic in an unprecedented deal with fellow oil nations, including the United States, that could curb global oil supply by 20%, according to Reuters.
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.
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.
On top of the OPEC+ agreement, oil producers in the G-20 will contribute their own output reductions.
The involvement of G-20 states, which have typically been critics of OPEC+, has been viewed as politically significant.
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.”
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.
Global oil demand is estimated to have fallen by around 30 million bpd as more than 3 billion people are locked down in their homes due to the outbreak.
Goldman Sachs Group Inc. called the cuts “too little and too late,” saying they’d only lead to an actual reduction of about 4.3 million barrels a day from first-quarter levels.
The bank stated in a note: “Ultimately, this simply reflects that no voluntary cuts could be large enough to offset the 19 million bpd average April-May demand loss due to the coronavirus.”