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The world’s top oil producers pulled off a historic deal to cut global petroleum output by nearly a 10th, putting an end to a devastating price war but not going far enough offset the impact of the coronavirus pandemic.

 

A week-long marathon of bilateral calls and ministerial video conferences joined the OPEC+ alliance and the Group of 20 nations in an unprecedented agreement. Together they have helped to lift oil prices from almost 20-year lows, but the focus of the market now shifts to whether they can dent a supply glut that keeps growing as the virus shuts down the global economy.

 

The deal may turn out to be “just a plaster on an open wound,” consultant JBC Energy GmbH said in a note. After swinging wildly in the first few minutes of trading, crude was down slightly London on Monday.

 

Despite the skepticism, the agreement still represents an important victory for the alliance between the Organization of Petroleum Exporting Countries and allies including Russia, which just a few weeks ago appeared to be dead. And it wasn’t easy, with talks almost falling apart late last week because of resistance from Mexico. They came back from the brink after a weekend of urgent diplomacy, and an intervention from President Donald Trump, helped to broker the final compromise.

 

“Unprecedented measures for unprecedented times,”said Ed Morse, a veteran oil watcher who is head of commodities research at Citigroup Inc. “Unprecedented in historical discussions of production cuts, the U.S. played a critical role in brokering between Saudi Arabia and Russia for the new OPEC+ accord.”

 

OPEC+ will cut 9.7 million barrels a day -- just below the initial proposal of 10 million.

 

“We have demonstrated that OPEC+ is up and alive,” Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg News in an interview minutes after the deal was done. “I’m more than happy with the deal.”

 

The accord caps a tumultuous month when Brent crude, the global benchmark, plunged to its lowest in nearly two decades, falling toward $20 a barrel. Earlier this year, it traded above $70 a barrel. OPEC+ ministers had to race onto a video conference call on Easter Sunday, less than four hours before the oil market reopened, to close the deal.

 

Brent futures jumped 8% in the first seconds of trading on Monday in Asia, but were down 2% at $30.85 a barrel at 10:35 a.m. in London.

 

With the virus paralyzing air and ground travel, demand for gasoline, jet-fuel and diesel is collapsing. That threatens the future of the U.S. shale industry, the stability of oil-dependent states and squeezes the flow of petrodollars through an ailing global economy.

 

On top of the OPEC+ agreement, oil producers in the G-20 will contribute their own output reductions, but those measures were in no way equivalent to the immediate cuts promised by the cartel.

 

Production declines due to the effects of low prices in the U.S., Brazil and Canada will be counted, deepening the global supply reduction by 3.7 million barrels a day, with other G-20 states contributing 1.3 million. Those curbs could take months, perhaps more than a year, to come into effect and may not even happen if crude prices recover significantly.

 

Still, the involvement of G-20 states that have typically been critics of OPEC+ was politically significant.

 

“OPEC+ started the fire, and it was their responsibility to put it out,” Jason Kenney, the premier of Alberta, Canada’s biggest oil-producing province, said in a Twitter post. “Many challenging months ahead with very low demand and huge inventories, but at least now there is path to recovery.”