(CNN) — Russia and Saudi Arabia have called off their brutal price war and are now pushing dozens of major crude producers toward a deal that would slash production and help stabilize a market that’s been rocked by the coronavirus pandemic.
A marathon video conference between OPEC members and other major energy powers on Thursday ended with a tentative deal to reduce production by 10 million barrels per day in May and June, the deepest cut ever agreed by the world’s oil producers.
But there was a snag: Mexico declined to support the agreement, and meeting participants acknowledged in a statement that final agreement is conditional on the country’s consent.
Attention has now turned to another round of talks between the Group of 20, which includes Mexico.
OPEC Secretary General Mohammed Barkindo on Friday urged G20 countries to join in production cuts, saying every oil producer has a responsibility to “broaden this operation.”
“Every producer, many of whom are developing nations, have been impacted and no one is immune. It is forcing us to assess and reassess what the consequences are on an almost daily basis,” Barkindo said, according to a transcript of his remarks.
Oil producers are desperately seeking to boost prices after Saudi Arabia and Russia abandoned years of production cuts in early March, launching a price war by flooding the market with crude.
A massive drop in demand for energy caused by the coronavirus pandemic pushed prices even lower.
On Friday, there were signs the group was moving toward consensus.
Mexican President Andrés Manuel López Obrador told reporters that he had discussed the issue with US President Donald Trump, and agreed to cut production by 100,000 barrels per day, which is far less than the 400,000 barrels per day other producers had sought on Thursday.
According to López Obrador, Trump offered during the phone call to cut US production by 250,000 barrels per day to compensate for Mexico.
Trump confirmed Friday that the US agreed to a cut in order to pick up some of the slack after he spoke with López Obrador.
Even if producers cut output by 10 million barrels per day, the decline in production would amount to only about 10% of the world’s normal supply of oil, far below the estimates for how much demand for oil has collapsed in the wake of the coronavirus crisis.
And it is unlikely to stem the massive plunge in oil prices in recent months.
A hemorrhaging industry
Thursday’s meeting began with Barkindo sounding the alarm about both oil prices and demand.
He told attendees that projections call for demand of nearly 12 million fewer barrels per day in the current quarter. “These are staggering numbers! Unprecedented in modern times,” he said.
At that rate, “Given the current unprecedented supply and demand imbalance there could be a colossal excess volume of 14.7 million barrels a day in the second quarter of 2020,” he said.
Even those dire forecasts may be too optimistic, as they could underestimate how much demand has fallen with harsh restrictions on travel, work and public life now in place in much of the world because of the pandemic.
Tom Kloza, the chief oil analyst for the Oil Price Information Service, said he believes demand is down as much as 20 million barrels a day. “This cut is woefully inadequate to stabilize prices into at least the summer,” he said.
The tentative agreement negotiated Thursday would see the output reduced to 8 million barrels a day from July to December followed by a 6 million barrels a day reduction from January 2021 to April 2022.
Iran, Libya and Venezuela would be exempted from the output cuts due to sanctions or lost production.
Oil futures had started Thursday higher on reports that there would be an agreement to cut up to 15 million barrels a day. As the day wore on, though, doubts emerged that the cut would be that large and prices closed slightly lower.
Hopes for a deal
Thursday’s emergency meeting, which was called by Saudi Arabia, followed pressure by Trump, who last week called on Saudi Arabia and Russia to deliver big production cuts.
Trump said he spoke with Russian President Vladimir Putin and King Salman of Saudi Arabia Thursday to discuss oil production.
Dozens of US oil companies are facing bankruptcy due to the collapse in oil prices and Trump said that he anticipates worldwide layoffs in the oil industry.
“The numbers are so low that there will be layoffs all over the world, there will be certainly layoffs in this country and we don’t want that to happen,” he said.
Trump said he hopes there will be a deal worked out to cut oil production. “We’ll see what happens but as you know OPEC met today and I would say they are getting close to a deal,” said Trump.