OPEC Secretary General Mohammed Barkindo has welcomed the new deal reached during the extraordinary meeting of the OPEC-non-OPEC oil producers as "historic" in their volume and duration and potentially leading to a global alliance inclusive of G20.

Earlier in the day, the OPEC+ oil producers agreed to a new deal stipulating a collective reduction in output in a bid to stabilise the market.

"Secretary General #HEMohammadBarkindo highlighted the importance of the historic agreement reached at the 10th (Extraordinary) OPEC and non-OPEC Ministerial video conference for the benefits of producers, consumers and the global economy," the OPEC Secretariat said on Twitter.

​The statement quoted Barkindo as describing the video conference itself as "historic," given the extraordinary effects caused by the COVID-19 pandemic on the global economy and oil demand. They required "prompt and decisive response" by the OPEC+ members, he said.

"These production adjustments are historic; they are largest in volume and the longest in duration, as they are planned to last for two years. We are witnessing today the triumph of international cooperation and multilateralism which are the core of OPEC values," Barkindo said.

The statement further quotes Barkindo as saying that the OPEC+ deal has "turned a new historic page in the world of oil."

Earlier, Russian President Vladimir Putin held separate telephone talks with US President Donald Trump and the king of Saudi Arabia, Salman bin Abdulaziz Al Saud. The leaders discussed the newly accepted OPEC+ deal and exchanged their views on the oil market situation. After the talks, Trump congratulated both leaders on "great deal for all".

The OPEC+ finalised deal accepted on the group online meeting earlier in the day envisages cutting the oil output by 10 million barrels per day and will become effective 1 May. 

Mexican Standoff Ends as OPEC+ Agrees to Cut Oil Production by Nearly 10 Million Bpd

Major oil producers around the world (excepting the USA) agreed in principle to cut oil output by 23 percent each on Thursday following a videoconference meeting of OPEC+ and partners. The fate of the deal remained uncertain, however, owing to Mexico's resistance to making cuts.

OPEC+ has reached an agreement to cut oil output by 9.7 million barrels per day (bpd) in the months of May and June after reaching a compromise with Mexico, Kuwait's oil minister has announced.

By the grace of God, and through wise leadership, and continuous efforts and continuous talks since Friday, today we announce reaching a historic agreement to reduce production by approximately 10 million barrels of oil per day among members of OPEC+ starting May 1, 2020," Minister Khaled Ali Al-Fadhel wrote.

A source in one of the OPEC+ delegations confirmed to Sputnik that the deal envisions a 9.7 million bpd cut over the next two months. "We now have the deal. [Production will be cut by] 9.7 million barrels per day," the source said.

Mexico's minister of energy Rocio Nahle thanked other members for their support on Twitter, with Iran's oil ministry confirming that the deal included Mexico. Earlier, the Latin American country held out against making the necessary 400,000 bpd in cuts, saying its limit was 100,000 bpd. Azerbaijan's delegation revealed that the compromise was reached after the US agreed to cut 300,000 bpd in production on Mexico's behalf.

"Mexico thanks @OPECSecretariat countries for their support at the extraordinary meeting held today. The unanimous agreement of the 23 participating countries will lead to a 9.7 million reduction in oil production starting in May," Nahle wrote.

The historic agreement, the largest ever of its kind, comes in the wake of collapsed oil prices and a glut of crude on global markets following a short-lived price war initiated by Saudi Arabia and its allies last month following disagreements regarding how much production should be cut amid the drop in global economic activity resulting from the COVID-19 pandemic.

The deal comes following days of intense negotiations between the energy ministers of OPEC+ members and partner nations.

The collapse in prices hit major producers around the world, forcing them to eat into their reserves or rack up debt. The US, whose shale producers face a higher breakeven price as is, were hit even harder, with at least one major producer filing for bankruptcy and major American banks making preparations to prepare to take over oil and gas fields in the event that more companies fold up. The US is not a partner to the deal, but OPEC+ has previously indicated that it would like non-members, including America but also Canada, Brazil and Norway to enact an additional 5 million bpd in cuts. The Trump administration has instead suggested that market forces will make the cuts, and has refused to set up any hard limits. On Friday, the US president offered to commit to 250,000 bpd in cuts on Mexico's behalf, with President Andres Manuel Lopez Obrador calling the offer "generous."

New OPEC+ Standoff: Analyst Explains Why Mexico Resisting Cuts, Would Make Money Even at $5 Oil

Mexico City has become the last holdout among the nearly two dozen nations negotiating an agreement to cut crude oil production by some 10 million barrels per day (bpd) over the next two months, with the country’s resistance putting the deal in jeopardy and prompting President Trump to intervene.

Mexican President Andres Manuel Lopez Obrador’s refusal to cut his country’s oil output by more than 100,000 bpd can be explained by the way the country prices its oil, some energy experts believe.

“The thing with Mexico is, they’re one of the only key countries which hedges a lot of their production with a bunch of put options,” says Jeremy McCrea, director of equity research at Raymond James Canada.

“It’s their whole motivation, because, if oil goes to five dollars, they make more money on their puts than the production cuts they take,” the analyst explains, commenting on the country’s resistance to OPEC+’s demands on cuts, which would require Mexico to shave about 400,000 bpd in output.

According to McCrea, President Trump’s commitment to take a 250,000 bpd production cut on Mexico’s behalf, which President Obrador described as “generous,” shouldn’t be taken as face value either, as Washington may quietly stash this cut in output in its reserves. The same thing can be said about many producers’ “cuts,” he says.

“[The cuts are] based off October [2019] levels, which were quite a bit higher than where current levels are now. So when you actually break it down, it’s actually about a 8.5 million bpd cut, and that includes Mexico. But if all these companies are just putting oil into storage and that’s where Mexico or the US’s additional cut is going, like where the US is saying ‘ok, we’ll take a few hundred thousand barrels and just put it in our [Strategic Petroleum Reserve],” McCrea explains.

McCrea believes that the proposed cuts are based more than anything on creating “headline numbers” for the markets to try to stop prices from tanking any further. “But in reality, I think the market can see through all these different things,” he says.

Numbers Don’t Add Up

Amena Bakr, deputy chief of the Dubai bureau at Energy Intelligence, a leading global energy sector analytics service, says that even with Trump’s offer to cut 250,000 bpd in output on Mexico’s behalf, the numbers still don’t add up, with Mexico still short 50,000 barrels from the cuts requested by OPEC+.

“I have talked to people in the US about this: industry experts, companies, and so on, and people familiar with the US cutting production. And what they told me is that the 250,000 cut on behalf of Mexico is not something realistic or feasible,” Bakr says.

Bakr believes Trump made the offer to assist Mexico with cuts because his administration is under a great deal of pressure from US shale producers, who have been hit particularly hard by the recent drop in oil prices owing to their higher production costs.

On April 1, Colorado-based Whiting Petroleum Corp became the first major shale producer to file for bankruptcy amid the glut, while others, including Denbury Resources Inc, have reportedly been communicating with debt advisors. On Friday, Reuters reported that major US banks were setting up independent structures to become operators of oil and gas fields across the United States amid fears that more producers could go belly up.

“I want to remind you that shale producers in the US live in states that are Republican states. These Republican states are in support of President Trump. And when the election comes, he needs these states to support him,” Bakr stresses.

Overall, Bakr suggests that the tentative OPEC+ agreement is a good “first step in the right direction,” a “kind of partial help to the market,” even accounting for the fact that some producers won’t necessarily comply with the cuts.

“I think it is going to take a long time for the market to stabilize. And this the reason that we saw the deal structured in this way,” he said, pointing to the multi-tiered plan including 10 million bpd in cuts over the next two months, followed by 8 million bpd in cuts starting in July and through to 2022. “So they have a long-term plan of market management ahead of this. One, this is reassuring to the market, and two, this is needed for the market that is so damaged to an unprecedented level. You need these kinds of extraordinary measures in place to attempt to [create] a balance,” Bakr concludes.