OPEC and other oil producers reached an Unprecedented Oil Deal that will cut production close to 10 million barrels a day.

Saudi Arabia, Russia and the U.S. have agreed to lead a multinational coalition in major oil-production cuts after a drop in demand due to the coronavirus crisis and a month-long Saudi-Russian feud had devastated oil prices. The deal, sealed Sunday, came after President Trump intervened to help resolve a Saudi-Mexico standoff that jeopardized the broader pact.

As part of the deal, 23 countries committed to collectively withhold 9.7 million barrels a day of oil from global markets. The unprecedented agreement is designed to address a mounting oil glut resulting from the pandemic’s erosion of oil demand.

Under the final deal announced Sunday, Mexico will cut 100,000 barrels a day of output, some 250,000 barrels fewer than Saudi Arabia initially wanted. The U.S. unlocked the standoff by pledging to compensate the Mexican amount with 300,000 barrels of reductions of its own, the delegates were told.

It remains unclear how the U.S. cuts would be carried out. Participants were also told the U.S., Canada and Brazil will hold back as much as 3.7 million barrels a day but some of the reductions will be market-driven losses.

Trump Joins the Cartel

For decades, Mr. Trump has been a vociferous opponent of the cartel, deeming its efforts an evil force that squeezed American motorists. But the price war between Saudi Arabia and Russia threatened a vibrant U.S. oil industry and led to what seemed to be a change of heart.

But in addition to prodding both sides into an agreement, the U.S. has also warned it would retaliate if Saudi Arabia didn’t turn off the spigots. On April 4, U.S. Mr. Trump threatened to impose tariffs on crude imports if he has to “protect” U.S. energy workers from an oil flood from producers such as Saudi Arabia.

Deal Won't Last

This deal won't last.

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Trump will soon get angry that the US is cutting more than its fair share.

Art of the Deal

The Saudis blew up a deal last month over meaningless production from tiny Angola.

The Saudi price demanded uniform cuts across the board. Letting the US stand in for Mexico will aslo annoy the Saudis.

We have a deal, but eventually someone cheats. And there is perpetual mistrust even if no one cheats. That's why cartels break up.

Moreover, I strongly question if 10 million barrels is even enough to do much more than stabilize the price at some low level.

Futures Now Open

It took 4 minutes but crude futures are down.

Same with stock market futures.

Mike "Mish" Shedlock

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