Oil: OPEC reportedly agrees on massive oil supply cut to offset virus impact; awaits Russia's approval

Sam Meredith, Holly Ellyatt

3-4 minutes - Source: CNBC

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OPEC has reportedly agreed to impose a deeper round of production cuts in order to support oil prices, paving the way for crunch talks with non-OPEC leader Russia, who has to agree to the plan.
The 14-member group, led by Saudi Arabia, decided Thursday to cut production by 1.5 million barrels per day (bpd), two unnamed sources told Reuters.
The deal — which was at the top end of analyst expectations — is believed to be conditional on approval from Russia.
A meeting of both OPEC and non-OPEC members, sometimes referred to as OPEC+, will take place on Friday.
Ahead of Thursday’s meeting, Russia’s appetite for deeper production cuts had been far from certain, with Moscow reportedly in favor of an extension to the current level of cuts rather than a further reduction.
International benchmark Brent crude traded at $51.49 Thursday morning, up around 0.7%, while U.S. West Texas Intermediate (WTI) stood at $47.11, around 0.6% higher.
The gathering of some of the world’s most powerful oil-producing nations comes with oil prices under pressure from weaker demand amid the coronavirus outbreak.

OPEC focused on doing something ‘very dramatic’

Speaking to CNBC’s Dan Murphy ahead of the meeting, Iranian Oil Minister Bijan Zanganeh said the group would “find a way” to help balance the market.
He did not comment when asked specifically about the extent of further production cuts.
United Arab Emirates’ Minister of Energy and Industry Suhail al-Mazrouei also refused to speculate when asked whether OPEC+ would look to impose an additional cut of more than 1 million bpd.

Minister of Energy of Russia, Alexander Novak (R) shakes hands with Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman (L).
Anadolu Agency

Amrita Sen, co-founder and chief oil analyst of Energy Aspects, told CNBC Thursday that she was “100%” certain that markets would sell-off if a smaller output cut than expected is announced.
“We’ve already seen Brent test $50 (per barrel) last week and I think people are expecting an OPEC action. I would say a million (bpd cut) is probably priced-in right now. Anything less, or even around that, will sell off,” she said. “If they fail to deliver, I think we’ll test thirties (oil at $30 a barrel).”
Sen said OPEC was focused on “doing something very dramatic right now,” safe in the knowledge that it can always reverse the cuts in the second half of the year.

How did we get here?

OPEC and non-OPEC producers first committed to curtailing their collective oil production policy back in 2016 in an effort to bolster prices, with the deal coming into force in January 2017.
In December 2019, it was extended and the alliance agreed to curb oil output by approximately 1.7 million barrels per day. Saudi Arabia then opted to cut its own production voluntarily by an additional 400,000 b/d for three months, should fellow members stick to their commitments.
In February, OPEC’s joint technical committee (JTC) reportedly recommended a 600,000 bpd reduction in oil production, and an extension of the cuts to end-2020, to alleviate downward pressure on oil prices.
Russia said at the time that it had not yet decided whether to sign up to the additional cuts, however, and that position appears to have continued.