On Sunday, OPEC and its allies, led by Russia, agreed to a record cut in production to support oil prices amid the coronavirus pandemic, and said they had an unprecedented deal with other oil countries, including the United States, to reduce global oil supplies by 20%.
Measures to slow the spread of the coronavirus has destroyed the demand for fuel and lowered oil prices, straining the budgets of oil producers and damaging the shale oil industry in the United States, which is more vulnerable to risks from low prices because of its high costs.
The group, known as OPEC+, said it agreed to cut production by 9.7 million barrels per day in May and June, after four days of talks and pressure from US President Donald Trump to stop the price drop.
This is the largest oil cut ever, four times larger than the previous record cut in 2008. Producers will slowly relax restrictions after June, although production cuts will remain the same until April 2022.
President Trump tweeted thanking Russian President Vladimir Putin and Saudi King Salman Al Saud for pushing the deal forward thereby saving hundreds of thousands of jobs in the US energy sector.
OPEC+ sources said they expected total global oil cuts to reach more than 20 million barrels per day, or 20% of global supplies as of May 1. OPEC had the same number in its draft statement, but took it out of the final version.
The demand for oil had decreased by about a third due to the coronavirus pandemic.
The total global cuts will include non-member contributions, additional severe voluntary cuts by some OPEC+ members and strategic stockpile purchases by the world's largest consumers.
Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters that the actual cuts by OPEC+ would reach 12.5 million barrels per day because Saudi Arabia, the United Arab Emirates and Kuwait will cut supplies further due to the increase in production in April.
Three OPEC+ sources said that non-member countries such as Brazil, Canada, Indonesia, Norway and the United States would contribute 4-5 million barrels per day.
Three OPEC+ sources said that the International Energy Agency, the agency responsible for monitoring energy in the most industrialised countries in the world, will announce the purchase of stocks by its members to reach 3 million barrels per day in the next two months.
The International Energy Agency said it will provide an update on Wednesday when it publishes its monthly report. The United States, India, Japan and South Korea say they may buy oil to replenish reserves.
Trump had threatened Saudi Arabia, the leader of OPEC, with oil tariffs and other measures if the problem of oversupply in the market was not solved as low prices put the American oil industry and the world's largest companies in distress.
Canada and Norway have shown a willingness to cut production, and the United States, which has difficulty working alongside cartels like OPEC because of its legislation, said production would drop sharply this year due to lower prices.
The OPEC+ deal has been delayed since Thursday, after Mexico, worried about derailing its plans to revive the heavily indebted state oil company, resisted the production cuts it was asked to make.
The Mexican president said on Friday that Trump had offered to make additional US cuts on his behalf, and would help Mexico by picking up "some of the recession" and compensating it later. He did not say how this would happen.
A previous agreement between OPEC+ to cut production this year collapsed due to a dispute between Russia and Saudi Arabia which triggered a price war that resulted in an oversupply, just as fuel demand was crushed by the coronavirus pandemic.
It is estimated that the global demand for oil has decreased by about 30 million barrels per day as more than 3 billion people are trapped in their homes due to the outbreak of the disease.
Goldman Sachs and UBS last week both expected Brent prices to drop to $20 a barrel as cuts would not be enough to help offset severe demand destruction due to restrictions to curb the outbreak of the coronavirus.