The Organization of the Petroleum Exporting Countries, Russia and other countries were on the verge of reaching an agreement Thursday to temporarily cut production, according to a person with knowledge of the matter.
OPEC and the other oil-producing countries agreed to cut about 10 million barrels a day, or about 10 percent from normal production levels, in May and June, said this person, who spoke on condition of anonymity because the announcement had not been made official. Possible further trims could come from a meeting of the Group of 20 nations Friday.
Oil prices fell because analysts and traders had hoped for a bigger reduction to prevent the buildup of a glut of oil. On Thursday afternoon, the West Texas Intermediate crude future contract, the American bench mark, was down more than 7 percent to $23.28 a barrel.
Amrita Sen, chief oil analyst at Energy Aspects, a research firm, said markets would not be impressed by the deal.
"In a nutshell, the demand declines are going to be greater than the production declines," said Sen. She estimated that demand would be down 25 million barrels a day, or about one-quarter of normal consumption, in April.
In addition, the new cuts won't begin until May, allowing oil supplies to increase. There are also doubts about whether some of the countries party to the cuts, like Iraq, which often produces whatever it can, will really observe them. Sen said that OPEC and its collaborators were largely doing what they would be forced to do anyway.
"With the sharp decline in demand, global producers will be forced to shut in production because we will run out of storage space," she said. "OPEC plus is simply codifying what they would have had to cut anyway."
The decision to cut might go some way toward assuaging growing tensions between members of the cartel and the United States.