Oil prices jumped on Thursday after sources said Russia and Saudi Arabia have a new deal to cut oil output drastically in response to a collapse in global demand from the coronavirus.

A worldwide lockdown to slow the spread of the coronavirus pandemic has cut fuel demand by roughly 30%, and contributed to a crash in prices that took major benchmarks down by more than two-thirds.

Prices surged on Thursday as producers appeared set to cut production sharply, though exact details were unclear.

Brent LCOc1 futures were up $2.24, or 6.8%, at $35.08 a barrel by 10:29 a.m. EDT (1429 GMT), while U.S. crude CLc1 rose $2.18, or 8.7%, to $27.27.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia – a group known as OPEC+ – were meeting by video conference on Thursday. A senior Russian source told Reuters that Russia and Saudi Arabia have removed their main obstacles to a new deal, which could be as much as 20 million bpd, though the exact details were as of yet unclear.

Such a deal would be by far the biggest output cut ever agreed by OPEC, but Russia has insisted it will only reduce output if the United States joins the deal. U.S. officials have not said they will force producers to cut, and U.S. laws prevent coordination among private companies.

The last OPEC meeting in early March ended acrimoniously, with Russia and Saudi Arabia unable to come to an agreement to curb output as the virus spread, adding to the slump in prices.

A source briefed on Saudi Arabia’s oil policy said it is ready to cut up to 4 million bpd of its production but only from its record output levels of 12.3 million bpd achieved in April.

Russia has said it wants to output to be cut from the January-March levels before Saudi production jumped.

Originally posted on June 11, 2020 @ 8:02 am

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