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Oil price war ends with historic OPEC Plus deal to cut output

Javier Blas, Salma El Wardany and Grant Smith

Apr 13, 2020 – 7.32am

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London | The world's top oil producers have pulled off a historic deal to cut global petroleum output by nearly a 10th, putting an end to the devastating price war between Saudi Arabia and Russia.

After a week-long marathon of bilateral calls and four days of video conferences with government ministers from around the world – including the OPEC Plus alliance and the Group of 20 nations – an agreement finally emerged to tackle the impact of the global pandemic on demand.

Mohammed bin Salman last year with Donald Trump, who helped broker the solution. Alex Ellinghausen

The talks almost fell apart because of resistance from Mexico, but it came back from the brink after a weekend of urgent diplomacy, including the personal intervention of President Donald Trump, who helped broker the solution.

"Unprecedented measures for unprecedented times,"said Ed Morse, a veteran oil watcher who is head of commodities research at Citigroup. "Unprecedented in historical discussions of production cuts, the US played a critical role in brokering between Saudi Arabia and Russia for the new OPEC Plus accord."

OPEC Plus will cut 9.7 million barrels a day – just below the initial proposal of 10 million. The US, Brazil and Canada will contribute a further 3.7 million barrels on paper as their production declines. OPEC officials were still waiting to hear more from Group of 20 members, though it's not clear whether those numbers will represent real cuts or just production idled because of market forces.

"We have demonstrated that OPEC Plus is up and alive," Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg News in an interview minutes after the deal was done. "I'm more than happy with the deal."

The deal caps a tumultuous month when Brent crude, the global benchmark, plunged to its lowest in nearly two decades, falling towards $US20 a barrel. Earlier this year, it traded above $US70 a barrel. OPEC Plus ministers raced onto a video conference call on Easter Sunday, less than four hours before the oil market reopened, to close the deal.

With the virus paralysing air and ground travel, demand for gasoline, jet fuel and diesel is collapsing. That threatened the future of the US shale industry, the stability of oil-dependent states and squeezed the flow of petrodollars through an ailing global economy.

Mexico's victory

Mexico won a diplomatic victory as it will cut only 100,000 barrels – less than its pro-rated share, having blocked the deal since the plan was first revealed on Thursday.

But the biggest winner appears to be Mr Trump, who refused to actively cut American oil production and personally brokered the deal over phone calls with Mexican President Andres Manuel Lopez Obrador, Russian President Vladimir Putin and King Salman of Saudi Arabia.

"Perhaps what's most remarkable about Saudi Arabia and Russia delivering one of the largest supply cuts ever is that the person who brought them back together and pressured hardest to cut was historically OPEC's harshest critic, President Trump," said Jason Bordoff, a former White House official during the Obama administration and now at Columbia University.

Mr Trump became the first American president to push for higher oil prices in more than 30 years, reversing his personal opposition to the cartel.