Oil remains depressed as producers await Mexico's approval for cuts

US President Donald Trump held talks with his Russian and Saudi counterparts late on Thursday

Opec secretary general Mohammed Barkindo, Saudi energy minister Prince Abdulaziz bin Salman and Russian energy minister Alexander Novak at an Opec meeting in Abu Dhabi in 2019. AFP

Oil prices remained depressed on Friday following reports that Opec+ had agreed to a 10 million barrel per day cut - its steepest ever - even as the leaders of the US, Russia and Saudi Arabia held parallel talks.

The Saudi and Russian-led group of producers are in consensus over implementing record production cuts, with the exception of Mexico, which walked out of approving a deal.

The deal, expected to begin in May, will see output curbs of 10m bpd for two months, Opec said in a statement.

Brent futures were down 4.14 per cent trading at $31.48 per barrel at 9.36am UAE time, while West Texas Intermediate slumped even more by 9.29 per cent and was trading at $22.76 per barrel.

The producers will subsequently pare back output by 8m bpd from 1 July until year end. An adjustment of 6m bpd is expected to hold from the beginning of 2021 until 30 April 2022. The producers will calculate their quotas on the basis of their production baselines from October 2018, with the exception of Saudi Arabia and Russia who will both cut from 11m bpd. Countries participating in the cut will meet virtually on 10 June to determine further actions to balance the markets. An extension of the pact to the year 2022 will be reviewed at a meeting of producers in December 2021, according to Opec. The alliance said the curbs were "conditional" on Mexico's agreement.

The Opec+ alliance is not expected to follow up with another meeting but the key producers of the alliance, as well as Mexico and the US will join another virtual conference of G20 energy ministers later on Friday.

Meanwhile, US President Donald Trump, who had lobbied for Moscow and Riyadh to set aside their differences and reach a deal spoke to the leaders of both countries over the phone late Thursday.

“We had a big talk as to oil production and Opec and making it so that our industry does well and the oil industry does better than its doing right now," Mr Trump told reporters following the call.

He added that Opec+ was close to reaching a deal and was expected to announce cuts officially later on Friday.

"Could be good, could be not so good,” Mr Trump said about the deal, and voiced concerns that storage in the US was filling up quickly.

Opec secretary general Mohammed Barkindo said in opening remarks during the virtual conference late on Thursday that oil market fundamentals had reached "horrifying" levels. He also expressed caution over available oil storage capacity. The group estimates available storage capacity worldwide at a billion barrels, but that was "quickly filling up", said Mr Barkindo.

"Given the current unprecedented supply and demand imbalance there could be a colossal excess volume of 14.7m bpd in the [second quarter], " he said.

The oversupply would add a further 1.3 billion barrels to global oil stocks, thereby exhausting available global crude storage capacity by May, he said.