The new OPEC-Russia agreement to steeply cut production should help the oil market avoid a complete meltdown, but it's nowhere near enough to undo the damage from the COVID-19 pandemic, analysts say.
Oh, and it's not even a done deal yet as G20 energy ministers get ready for separate but related talks that begin this morning.
Driving the news: The OPEC+ group, led by Saudi Arabia and Russia, yesterday held marathon remote talks that yielded an agreement to jointly pare back production by 10 million barrels per day for two months beginning in May.
The size of the cuts then declines in stages through the end of April 2022 (but would be reviewed before that date).
Why it matters: It's the first major coordinated response to the pandemic that's creating an unprecedented collapse in global oil demand and has pushed prices to very low levels.
The deal marks a truce between the Russians and Saudis, whose failure to reach an agreement a month ago worsened the price collapse, sending prices to their lowest levels in two decades before more recent (but limited) gains.
But, but, but: Delegates could not reach an agreement with Mexico on the size of its contribution, so the official OPEC statement notes the result is "conditional on the consent of Mexico."
What's next: The lingering questions about the state of the pact put even greater weight on remote talks that begin this morning among G20 energy ministers, including the U.S.
The market reaction to the still-unfinished OPEC+ deal will likely hinge on whether the question of Mexico's posture is resolved, and signs that producers outside the OPEC+ group will curb output, too.
The intrigue: The U.S. has not offered a firm production-cutting commitment. But Saudi Arabia — which is OPEC's dominant producer — appears satisfied with the White House posture that market-driven declines represent the U.S. contribution.
- Saudi energy minister Prince Abdulaziz bin Salman, asked by Reuters about other countries including the U.S., Canada and Brazil joining the effort, said:
- “They will do it in their own way, using their own approaches, and it is not our job to dictate to others what they could do based on their national circumstances.”
- President Trump spoke by phone with Russian President Vladimir Putin and Saudi King Salman Thursday evening.
The global benchmark Brent crude closed in the mid-$31-per-barrel range Thursday.
- That's several dollars below where it ended last week, and for that matter, where it was earlier in the day, when the market responded to expectations of a major deal.
- However, it's still around $10 above where it was in the middle of last week.
Go deeper: Global Oil Deal at Risk After Mexico Ditches Saudi-Russia Plan (Bloomberg)
Editor's note: This item has been corrected to reflect the price of Brent crude oil during trading on Thursday (not Friday).