The deal, sealed Sunday, came after President Trump intervened to help resolve a Saudi-Mexico standoff that jeopardized the broader pact.
As part of the agreement, 23 countries committed to withhold collectively 9.7 million barrels a day of oil from global markets. The deal, designed to address a mounting oil glut resulting from the pandemic’s erosion of demand, seeks to withhold a record amount of crude from markets—over 13% of world production. The U.S. has never been so active in forging a pact like this.
On a hastily convened conference call with delegates from the 13-nation Organization of the Petroleum Exporting Countries and others, including Russia, participants raced to strike a deal before oil markets opened Monday. They expected prices to crash without an accord.
It was a diplomatic victory for Mr. Trump. His allies in the oil industry prodded him to press international rivals to cut supply before it caused a wave of U.S. bankruptcies.
Mr. Trump, on Twitter, said the deal will “save hundreds of thousands of energy jobs in the United States,” and he thanked the Russian and Saudi Arabian leaders for their cooperation.
Mr. Trump and his representatives weren’t present at Sunday’s meeting. Still, the American president’s presence loomed large, after calling the Saudi leadership and Mexican President Andrés Manuel López Obrador over recent days. Mr. Trump also placed phone calls last month urging the Saudi and Russian leaders to call a cease-fire in their price war against each other.
Christi Craddick, a regulator with the Texas Railroad Commission—which regulates oil in the U.S.’s largest oil-producing state—said Mr. Trump’s “aggressive actions and continued engagement to bring Saudi Arabia and Russia to the table to reduce global oil production was crucial to defending the domestic energy industry” and avoiding a downward spiral in oil prices.
Investors remain concerned that the cuts might not be enough to support higher prices in the coming weeks as world-wide lockdowns pummel demand for gasoline, diesel and jet fuel.
The curbs will mitigate some issues in oil markets, but some analysts said they were too little, too late. Amid travel restrictions and work stoppages, oil consumption is expected to fall by as much as 30 million barrels a day this month.
Under the final deal disclosed Sunday, Mexico will cut 100,000 barrels a day of output, some 250,000 barrels fewer than Saudi Arabia initially wanted. The U.S. unlocked the standoff by pledging to compensate for the Mexican amount with 300,000 barrels of reductions of its own, the delegates were told.
It couldn’t be determined whether that was in addition to other U.S. cuts, or how the U.S. cuts would be implemented.
In the end, Saudi Arabia, Russia and their other oil allies expected to bear the brunt of the work rebalancing the historic glut.
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The U.S., Canada, Brazil and the other Group of 20 leading economies that aren’t part of the OPEC alliance will hold back four million to five million barrels a day, OPEC said in a draft press release.
Canada wasn’t asked to impose production cuts on its oil producers, said Sonya Savage, energy minister for Alberta, Canada’s largest oil-producing province. Instead, the decrease will come through market forces, as companies tend to cut production voluntarily when prices drop, she said.
In addition, Saudi Arabia, the United Arab Emirates and Kuwait have agreed to cut a combined two million barrels a day above their quota, Iranian Oil Minister Bijan Zanganeh said in a televised interview.
Industrialized nations that are part of the International Energy Agency are set to announce crude purchases to fill their national inventories as a way to take some surplus oil off the market, according to people familiar with the matter.
Overall, the measures, combined with existing sanctions on Iran and Venezuela and outages in hot spots such as Libya, could withhold 20 million barrels a day of supplies from the market, OPEC said in the draft press release.
The American Petroleum Institute, the largest oil and gas trade group in the U.S., commended a deal to “reduce supply to align with lower energy demand as result of the pandemic.”
Without the deal, the global oil industry would have run out of storage over the next few weeks, and prices would have crashed and hit financial markets, said Daniel Yergin, vice chairman of IHS Markit. “This restrains the buildup of inventories, which will reduce the pressure on prices when normality returns,” he said.
Oil prices are down 40% since early March, when Saudi Arabia and Russia failed to agree on an emergency plan to address the supply glut. After the disagreement, Saudi Arabia embarked on an aggressive price war in an attempt to grab market share from Russia, a key rival.
The international deal had stalled three times in recent days, with scheduled votes canceled and ministers repeatedly dismissed and called back, a senior White House official said.
Tensions grew inside the White House on Sunday afternoon after a fourth vote didn’t start at the scheduled time. Several officials believed it was the last chance for a deal. Mr. Trump grew concerned and made another round of calls to keep leaders at the negotiating table, the White House official said.
For decades, Mr. Trump has been a vociferous opponent of the cartel, deeming its efforts an evil force that squeezed American motorists. But the Saudi-Russia price war‘s threat to the U.S. oil industry led to what seemed to be a change of heart.
In addition to prodding both sides, the U.S. has also warned it would retaliate if Saudi Arabia didn’t turn off the spigots. On April 4, Mr. Trump threatened to impose tariffs on crude imports if he has to protect U.S. energy workers from an oil flood from producers such as Saudi Arabia.
Some Republican senators spoke with the Saudi energy minister for nearly two hours Saturday, warning him a longstanding U.S. alliance with the kingdom would be damaged if he didn’t cut output. “The Saudis spent over a month waging war on American oil producers, all while our troops protected theirs. That’s not how friends treat friends,” Sen. Kevin Cramer, a North Dakota Republican, said.
On Sunday, Mr. Cramer said he would monitor the deal’s implementation. “We have to make sure these countries hold up their end of the deal, and we will be watching every step of the way,” he said.
The deadlock between Mexico and Saudi Arabia proved to be a test for Prince Abdulaziz bin Salman’s uncompromising leadership style, delegates said, as the Saudi energy minister struggled to corral nations into a deal.
At the OPEC-led meeting on Thursday, Prince Abdulaziz appeared to have reached a collective deal when he rebuked a demand by Rocío Nahle, the energy minister of Mexico, to soften production curbs. “He was inflexible,” said a delegate. The prince wanted OPEC to act as a unified group. He has said he believes any exemptions to oil production cuts would bring about a total collapse of the oil market.
Prince Abdulaziz, the son of the Saudi king and half-brother to the designated heir to the Saudi throne, Crown Prince Mohammed bin Salman, was the first royal ever to receive Saudi Arabia’s energy portfolio last fall.
His role as oil negotiator was challenging from the start. He blocked Angola from a technical meeting and then argued with the African producer over small cuts, which almost derailed his first major summit as OPEC’s de facto chief in December.