OPEC finally agrees to a 1.5 million barrel a day cut, to offer virus led decline in oil prices. But it is not officially known whether Russia has agreed to it. Image Credit: Bloomberg

Vienna: OPEC agreed to cut oil production by 1.5 million barrels a day to offset the huge demand hit from the coronavirus epidemic - but it was unclear whether its key ally Russia was on board.

Ministers from the Organization of Petroleum Exporting Countries reached an agreement at talks in Vienna on Thursday, but Russian Energy Minister Alexander Novak wasn’t present at the conference. On Wednesday, he left the city without giving his support to the production cut favored by Saudi Arabia, instead preferring to maintain current output levels.

The 1.5 million barrel-a-day cut would include Russia and other non-OPEC allies, delegates said, asking not to be named because the talks were private.

These countries will arrive in the Austrian capital on Friday to discuss an agreement. If Moscow continues to withhold its backing, it’s unclear whether the cut would actually be implemented.

Price jitters

With oil prices down more than 20 per cent since the beginning of the year, the debate in Vienna between OPEC and its allies was being closely watched across the energy industry. The fortunes of resource-dependent economies from Africa to Asia, as well as corporate giants like Exxon Mobil Corp. and shale drillers in Texas, could turn on the  decision.

Saudi Arabia’s push for a big cut reflects that mounting concern. Oil just suffered its biggest weekly slump since the global financial crisis, falling far too low to balance the budgets of most OPEC members.

“We think OPEC+ really needs to cut about 1 million to 1.5 million barrels a day just to put a floor under prices right now,” Allyson Cutright, a director at Rapidan Energy Advisers, said. Ultimately, the Russians will go along with that, but the Saudis “will have to take the majority” of cuts.

Who cuts down and how

The division of cuts between Saudi Arabia and Russia has always been uneven, with the former bearing a larger share from the very start despite the latter having higher production. But the split has become more inequitable with each iteration of the deal.

Last year, the kingdom implemented 65 per cent of the group’s total supply reduction on average, compared with just 11 per cent for Russia.

The coalition is already making deep cuts to offset the US shale boom, agreeing on a fresh supply reduction of 2.1 million barrels a day as recently as December. OPEC’s output last month was the lowest since 2009, when the group implemented the sharpest production cuts in its history at the depths of the global financial crisis.