By Darya Korsunskaya and Rania El Gamal
Russia said on Thursday that OPEC kingpin Saudi Arabia had proposed global oil production cuts of up to 5 per cent in what would be the first universal deal in over a decade to help clear a glut of crude and prop up sinking prices.
Benchmark Brent futures jumped as much as 8 per cent to nearly $36 a barrel on news of the potential deal, which if implemented would immediately reduce surplus global output exceeding demand by 1 million barrels per day (bpd).
Russian Energy Minister Alexander Novak said Saudi Arabia had proposed that oil-producing countries cut production by up to 5 per cent, which for Russia – the world’s top producer – would represent around 500,000 bpd.
“Indeed, these parameters were proposed, to cut production by each country by up to 5 per cent,” Novak said. “This is a subject for discussions, it’s too early to talk about.”
Novak also told reporters there was a proposal for a meeting between the Organization of the Petroleum Exporting Countries and non-OPEC nations at the oil minister level and that Russia was ready for such talks.
“There are lots of questions about the oversight over cuts,” he added.
Oil sank to 12-year lows around $27 a barrel earlier this month, from as high as $115 some 18 months ago, on the back of a US shale oil boom and a decision by OPEC to pump more to fight for market share against higher-cost producers.
The repercussions of oil’s plunge are huge, with some oil-rich nations forced to devalue their currencies – Russia’s rouble hit an all-time low. Street protests have flared in Azerbaijan and markets remain jittery over a potential default by OPEC member Venezuela.
Saudi Arabian officials did not immediately comment on the proposal but a senior Gulf OPEC delegate said: “Gulf OPEC countries and Saudi Arabia are willing to cooperate for any action to stabilise the international oil market.”
“You have to take this seriously now. Key will be if Russia can deliver,” said Gary Ross, a veteran OPEC watcher and founder of US-based Pira group.
Brenda Kelly, head analyst at London Capital Group, said the proposed cuts were unlikely to happen.
“There have been attempts in the past that have come to (nothing). Saying something about the oil price and doing something are very different things, and it seems like panic given the price drop.”