Oil prices set to rise after Donald Trump cuts deal with Russia, Saudi Arabia

The deal will send crude prices up by 45 percent.
The deal will send crude prices up by 45 percent. Photo credit: Getty

US President Donald Trump says he has brokered a deal with top oil producers Russia and Saudi Arabia to cut output and arrest an oil price rout amid a global coronavirus pandemic, sending crude prices up by 45 percent.

Trump says he spoke with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, and now expects the two nations to cut output by 10 million barrels per day (bpd) - an unprecedented number representing 10 percent of global supply.

Trump said cuts could amount to as much as 15 million bpd but didn't say whether the US, the world's largest oil producer, would contribute to reductions, a move which is forbidden by US antitrust legislation.

"Just spoke to my friend MBS (the crown prince) of Saudi Arabia, who spoke with President Putin of Russia and I expect and hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be great for the oil & gas industry!" Trump wrote on Twitter on Thursday (local time).

Global oil demand has fallen by a third, or 30 million bpd, in the last few weeks as some three billion people have been put in a lockdown to slow the spread of coronavirus.

The immense decline in demand has sent oil prices to their lowest levels since 2002, close to US$20 per barrel, hitting budgets of oil-producing nations and dealing a huge blow to the US shale oil industry, which cannot compete at low prices.

The downward pressure has been exacerbated by a battle for market share between Russia and Saudi Arabia, after the two countries failed to reach a deal to curb supply in early March and pledged to raise production instead.

Russian Energy Minister Alexander Novak said on Thursday Moscow was no longer planning to raise output and said it was ready to co-operate with the Organisation of the Petroleum Exporting Countries and other producers to stabilise the market.

OPEC's de-facto leader Saudi Arabia called on Thursday for an emergency meeting of OPEC and non-OPEC oil producers, an informal grouping known as OPEC+, saying it aimed to reach a fair agreement to stabilise oil markets.

It was not clear when any such meeting could be held.

"This invitation comes within the framework of the kingdom's constant efforts to support the global economy in this exceptional circumstance, and in appreciation of the US president's request and the US friends' request," the state news agency SPA reported.

Trump will meet US oil company chiefs later on Thursday but it was not clear if production cuts would be discussed.