A global pact to stem the biggest rout in oil prices for almost two decades has been all but sealed as the Opec cartel and its key allies agreed to slash production by 10 million barrels a day.
Further G20 talks also saw major producers including the US and Canada working towards their own cuts that could lop another 5 million barrels off global output.
Crude oil prices have seen devastating falls this year on a toxic combination of a supply glut, a coronavirus-triggered collapse in global demand, and a bitter price war between Saudi Arabia and Russia.
The Saudis – the world’s second biggest producer behind the US – flooded the market with crude in March after falling to agree cuts with Russia, which was working with the cartel to lower production.
The market shock left Brent crude reeling at a 17-year low below $25 a barrel in mid-March. Prices remain more than 50pc down compared with the beginning of the year.
While good news for consumers, producers are straining for a deal as the price collapse heaps pressure on the finances of oil-producing nations and debt-laden private sector producers.
The truce sees the so-called ‘Opec+’ coalition cut 10 million barrels of oil a day until July – equivalent to a tenth of global output – and then eight million barrels a day until the end of the year, before shallower cuts in 2021.
Following the Opec+ deal, which faced a last-minute hitch from Mexico demanding less stringent cuts, US president Donald Trump held talks with Russian counterpart Vladimir Putin over the agreement. Canada’s Justin Trudeau said nations had to make a “concerted” effort to cut supply.
The unprecedented co-ordination between often fierce global rivals could encompass around 15pc of world production in the face of the coronavirus outbreak. Mohammed Barkindo, the Opec secretary general, said the outbreak was a “grisly shadow hanging over all of us”, which would have a “crushing and long-term impact on the industry”.
The pressure to do a deal was intensified by the world’s oil storage capacity filling up rapidly as producers continue to pump.
But analysts warn even these proposed cuts may not be enough to offset the loss in demand over the longer term, as the pandemic slashes global demand. UBS predicts Brent crude falling to $20 per barrel or lower during the second quarter with much of the world still in lockdown.
Ole Hansen, head of commodities at Saxo Bank, said: “The best we can hope for at this stage is the market stabilises. I’m not seeing the market rocketing higher on Monday because right now the only thing the producers… have done is to buy some time.
“This was the key to the exercise, to ensure we don’t get to a point where we run out of storage and we don’t get a renewed collapse in the oil price.”
He added that Covid-19 had completely changed the dynamic of the oil market, saying: “Normally the best cure for a low price is a low price because it attracts increased demand, but this is a completely different ball game. We are not driving more tomorrow because prices are cheaper.”
John Hall, chairman of energy consultant Alfa Energy, said an over-supplied market should keep the cost of petrol low despite the cuts. He said: “For the motorist that can legitimately use a vehicle there should be some cheaper deals around. However, the caveat is that because of the drop in demand, supermarkets are probably still stocked up with fuel that they bought last month before the price drop.”