OPEC leaders and Russia agreed Thursday to a two-month crude production cut of 10 million barrels a day following an emergency teleconference urged by U.S. President Donald Trump.
As part of that 10 million, Saudi Arabia, the cartel's de-facto leader and the world's second-largest producer, will cut 3.3 million barrels a day from its output, which was set to reach 12.3 million. Russia, the world's No. 3 producer, will cut production by 2 million barrels a day.
The balance of the cuts, which would equal around 10% of total crude supply - the largest on record - will come from other OPEC member states, according to media reports of the Thursday teleconference, and will cover the months of May and June.
Brent crude futures contracts for June delivery, the benchmark reference for around 60% of global crude purchases, were recently down 2.9% at $33.89 a barrel, according to oilprice.com.
WTI crude futures for May delivery, which are more tightly connected to domestic gas prices, slumped 7.3% to $23.25, after briefly trading south of $20 in the early part of last week.
Trump last week first floated the idea of output cuts when he tweeted that Saudi Arabia and Russia had agreed to reductions that could reach 15 million barrels a day.
That would have been not only the largest daily reduction in OPEC's history - more than six times the record 2.2-million-barrel-a-day pact agreed in 2008 - it would also be around half the output of the world's second and third largest producers.
Trump added further pressure on the cartel's discussions, which are expected to be followed by a G20 teleconference on Friday, by threatening to slap "very substantial" tariffs on non-U.S. crude imports in order to protect jobs in the American energy industry.
"If I have to do tariffs on oil coming from outside or if I have to do something to protect our tens of thousands of energy workers and our great companies that produce all these jobs, I'll do whatever I have to do," Trump told reporters late Sunday after weekend meetings with energy executives at the White House.
The president has also insisted that U.S. drillers have "already cut" production. That view could be justified by a record gain in U.S. crude inventories (which rose by 15.2 million barrels last week), capex and spending reductions unveiled by companies such as ExxonMobil XOM and Chevron Corp. CVX, and the steepest slide in rig installations around the Gulf of Mexico and the shale-rich Permian Basin in at least five years last week.
U.S. participation in an output-cut agreement would also be complicated by antitrust regulations, although some experts have said that government officials could order the cuts directly in order to skirt existing legislation.
Saudi Arabia, the world's No. 2 producer behind the U.S., was set to pump a record 12.3 million barrels of crude each day, starting this month. This was to follow the collapse of its three-year output-limit agreement with OPEC cartel members and Russia in Vienna last month.
That surge in output, as well as the ongoing slump for global oil prices, has made drilling in the Permian, a major source of shale deposits that could provide as many as 150 million barrels of oil over the next few decades, economically not viable.
To justify the expense of new drilling projects in the region, the break-even price for U.S. crude needs to hover between $40 and $50 a barrel, most analyst estimate.