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Russia and Saudi Arabia agree deal on oil output cuts: Report

OPEC members are on Thursday set to discuss 'deep cuts' of up to 20 million barrels per day
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas (Reuters)

Russia and Saudi Arabia have overcome all hurdles to cut oil production at a meeting of OPEC, ending a month-long price war.

Oil prices jumped after Reuters reported that the two countries have agreed to a "deep cut" in crude production.

OPEC and other oil producers were set to debate on Thursday oil cuts as big as 20 million barrels per day (bpd), equivalent to about 20 percent of global supplies, one OPEC source and a Russian source told Reuters.

"That is a global deal," the OPEC source said.

He did not specify if the United States would be involved - something Russia and OPEC producers have insisted on.

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

Prices surge

Prices surged over 10 percent earlier on Thursday as producers appeared set to cut production sharply, but the exact details of the cuts remain unclear.

The OPEC and allies including Russia - a group known as OPEC+ - were in talks on Thursday to cut production sharply, with numbers as high as 20 million bpd bandied about, OPEC and Russian sources said.

That would be equivalent to about 20 percent of global supplies, to support prices hammered by the coronavirus crisis. However, it is unclear if a figure that lofty includes cuts made for economic decisions by private producers in the United States, Canada and elsewhere, or if OPEC assumes those countries will mandate cuts, which the US has not wanted to do.

A cut of 20 million bpd 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. US laws prevent coordination among private companies.

Analysts, meanwhile, said that even if such record cuts are agreed, they will not be enough.

"Ultimately, the size of the demand shock is simply too large for a coordinated supply cut," analysts at Goldman Sachs said on Thursday.

Following the OPEC+ meeting, energy ministers from the Group of 20 major economies are set to meet on Friday.

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 output to be cut from the January-March levels before Saudi production jumped.