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.

Alberta premier says province hasn't been asked to constrain energy output

OPEC, Russia and other allies outlined plans on Thursday to cut their oil output by more than a fifth. (Ramzi Boudina/Reuters)

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 cent of global supplies, with another five million 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, or 30 per cent of global supplies, as steps to fight the virus have grounded planes, cut vehicle usage and curbed economic activity. An unprecedented 15 million bpd cut still won't remove enough crude to stop the world's storage facilities quickly filling up.

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

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

Thursday's OPEC+ talks will be followed by a call on Friday between energy ministers from the Group of 20 (G20) major economies, including Canada. OPEC and Russian sources said they 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 Jason Kenney said Thursday the 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," Kenney told reporters.

Federal Natural Resources Minister Seamus O'Regan said in an statement to CBC News that he has spoken with his counterparts in Alberta, Saskatchewan and Newfoundland and Labrador, and they agreed to keep working together to address the instability affecting the energy sector. 

"Canada is heading into an unprecedented meeting of 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 their level at the end of 2019.

OPEC+, which groups the Organization of the Petroleum  Exporting Countries, Russia and others, would cut output by 10 million bpd in May to June, OPEC+ documents showed.

All members will reduce their output by 23 per cent, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over one million bpd.   

Gradual approach

OPEC+ would then ease cuts to eight million bpd from July to December and relax them further to six million bpd from January 2021 to April 2022, the documents showed.

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

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

U.S. President Donald Trump said last week he had brokered a deal with Saudi Arabia and Russia. (Alex Brandon/The Associated Press)

"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 be watching for the outcome of discussions among the G20 on Friday. He said that could include something from Canada, although the early indications are that might not be required. 

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

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

Before Thursday's talks, Moscow and Riyadh had been at odds over what 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.

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

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

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

With files from Tony Seskus, CBC News