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Saudi Arabia, Russia and other large oil producers are racing to negotiate a deal to stem the historic price crash as diplomats said some progress was made on Sunday.
The talks still face significant obstacles: a meeting of producers from OPEC+ and beyond — delayed once — is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but U.S. President Donald Trump has so far shown little willingness to do so.
Oil diplomats are trying to stitch together a meeting of G20 energy ministers for Friday, part of an effort to bring the U.S. on board, according to two people familiar with the situation.
Crude prices have fallen 50% this year, as the economic effects of the pandemic have knocked out about a third of global demand. The price crash is so dramatic that it’s threatening the stability of oil-dependent nations, the existence of U.S. shale producers, and poses an extra challenge to central banks.
Even the International Energy Agency, which represents nations that consume oil, is calling for action. Oil officials know that if a deal to cut supply in an orderly way isn’t reached, the market will simply force producers to slash output as storage space runs out.
“We see a huge oversupply in the oil market,” Fatih Birol, the head of the IEA, said in an interview on Sunday. “There’s a need for the G20 in the driving seat, led by current its current chair, Saudi Arabia.”
The aim of talks, first revealed by Trump last week, is to cut oil production by about 10% — the biggest ever coordinated reduction. Crude rallied on Trump’s comments but pared those gains as the diplomatic intricacies became clearer.
Even if a deal is struck for as much as 10 million barrels per day, that will barely dent the supply glut, which is estimated at as much as 35 million. In some corners of the physical market prices have already turned negative, and traders have been putting oil into tankers at a record pace to store it at sea.
Saudi Arabia and Russia both say they want the U.S., which has become the world’s largest producer thanks to its shale revolution, to join the cuts. But Trump had only hostile words for OPEC on Saturday, and threatened tariffs on foreign oil. The G20 may be an easier forum for the U.S. to embrace than OPEC.
“If the Americans don’t take part, the problem which existed before for the Russians and Saudis will remain — that they cut output while the U.S ramps it up, and that makes the whole thing impossible,” said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group that advises the Kremlin.
It’s not clear if Russia and Saudi Arabia will require the U.S. to publicly commit to cut production — a challenge in the private, fragmented American industry — or if a compromise gesture would be enough. Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, said Moscow would like the U.S. to lift some sanctions as a compromise.
Trump said last week he was confident Saudi Arabia and Russia would make a deal to cut production and has applied pressure to both. All three players — Crown Prince Mohammed bin Salman, Russian President Vladimir Putin and Trump — appeared to be maneuvering to avoid blame if talks fail.
Saudi Arabia and Russia have been indulging in blame games since early last month, when OPEC+ talks broke down because Russia refused to back cuts and Saudi Arabia responded by launching a price war. The fight between the former allies has had brutal consequences for the U.S. shale industry, dragging Trump into the fray.
“The chances of a meaningful deal that delivers real production cuts are low but back-channel talks are ongoing,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “Mohammed bin Salman is under heavy political pressure from Trump to demonstrate the Kingdom isn’t trying to bankrupt the U.S. shale industry.”
Any agreement will require diplomatic agility at a time when nations are devoting massive resources to fighting the pandemic itself.
Russia and Saudi Arabia — which sparred publicly between themselves over the weekend — have also disagreed about how they would calculate the cuts, according to a person familiar with the talks.
Russia favors using an average of the first quarter output as the baseline, while Saudi Arabia wants to use its current April production. The difference is huge: the kingdom pumped 9.8 million barrels a day on average between January and March. In April — as it wages its battle for market share — it’s producing more than 12 million.
— With assistance by John Follain, Dina Khrennikova, Ilya Arkhipov, Anthony Di Paola, and Samy Adghirni
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