Saudi, Russia agree on contours of historic deal to tackle slump

[LONDON] Saudi Arabia and Russia have agreed on the outline of a deal to cut oil production in an effort to lift the market from a pandemic-driven collapse.

The two nations appear to have buried differences that led to a huge supply surplus, delegates said. The rapprochement came just before the extraordinary virtual meeting of Opec and its allies kicked off.

It's however still unclear how some of the obstacles will be cleared. Saudi Arabia was pushing for any supply curbs to be measured against a higher baseline - its April production of above 12 million barrels a day, delegates said earlier. At the same time, Russia showed no sign of weakening its insistence that a deal was only possible if the US cuts output too.

Oil surged as much as 11 per cent.

Moscow, whose grudge against US shale could still arguably prevent a final deal, said Wednesday it's willing to reduce output by 1.6 million barrels a day, or roughly 15 per cent. Saudi Arabia was also discussing a cut of 15 per cent to 17 per cent on Thursday, delegates said, asking not to be identified because the talks were private.

However, the two sides were still disagreeing over the baseline for those reductions, the delegates said. It's a debate that could make a huge difference to the size of the production cut. As the Saudis have pushed for their contribution to be measured against current record output, Russia has favoured using an average of the first quarter, when the kingdom pumped about 9.8 million barrels a day.

At stake is the fate of entire oil-dependent economies, thousands of companies and millions of oil industry jobs as the Opec+ coalition and Group of 20 energy ministers gather in two key video conferences this week. Crude futures have plunged to the lowest levels in almost two decades as the lockdowns around the world slash oil demand by as much as 70 per cent in some places and Russia and Saudi Arabia battle for their share of a shrinking market.

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