Global Oil Powers Inch Closer to Historic Deal to Cut Output

      Published on Tuesday, 7 April , 2020      2135 Views     
Global Oil Powers Inch Closer to Historic Deal to Cut Output

The world’s largest oil producers will meet this week for unprecedented talks on a deal to mitigate the devastating impact of the coronavirus on the energy industry.

Saudi Arabia and Russia were hammering out the terms of a deal to cut crude output at Thursday’s virtual OPEC+ meeting, hoping that members of the Group of 20 including the U.S. could agree to take similar measures on Friday.

Their actions will determine whether the world continues to drown in a flood of oil that’s starting to overwhelm storage tanks and force a wave of abrupt production shutdowns.

A deal still hinges on some form of co-operation with America, according to delegates involved in the talks. That may be difficult for OPEC to achieve, as President Donald Trump resists any partnership with the cartel that he’s vilified for years. However, the collapse in crude prices to 18-year lows has triggered deep reductions in U.S. drilling which means a drop in production is inevitable, which could be enough to satisfy Saudi Arabia and Russia.

“Nobody’s asked me, so if they ask I’ll make a decision,” Trump said on whether the U.S. would participate in cutbacks. American producers are “already cutting back and they’re cutting back very seriously. I think it’s happening automatically.”

The U.S. Energy Information Administration cut its oil output forecast by almost 10% on Tuesday, saying it now expects the nation to pump an average of 11.8 million barrels a day this year.

Virtual Meetings

The fate of everything from wildcat explorers in Texas to government spending programs in West Africa will be decided in back-to-back online conferences.

The Organization of Petroleum Exporting Countries and its allies are set to meet by video link at 4 p.m. Vienna time on April 9. Russia and Saudi Arabia are likely to curb their production significantly, although key details have yet to be agreed as of Tuesday, said people familiar with the negotiations.

Whatever emerges from those talks could depend on what happens next. At the virtual meeting of G-20 energy ministers the following day, the U.S., Canada and Brazil will signal whether they will contribute to curtailing the global oil surplus. The video conference is scheduled to start at 3 p.m. Riyadh time and last for about 2 1/2 hours, according to a diplomat involved.

Friday’s meeting will aim to “foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy,” Saudi Arabia said in a statement on Tuesday.

Global Deal

A final global deal could reduce supplies by 10 million barrels a day or more, a level Trump first invoked last week. However, even that amount may only dent the supply glut caused by the lockdown of billions of people around the world to slow the spread of the virus, which is estimated to have reduced demand by as much as 35 million barrels a day.

“Even if a fudge can be found, some very creative maths is required to deliver the desired headline cut figure,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “We struggle to see how we get to 10 million barrels a day of actual production cuts, even using inflated April baseline numbers.”

In talks so far, Russia has favored using an average of the first quarter output as the baseline from which to cut production, while Saudi Arabia wants to use its current April production, according to people familiar with the discussions. The difference is huge: the kingdom pumped 9.8 million barrels a day on average between January and March. In April — as it unleashed a shock and awe price war against its former ally — it’s been pumping more than 12 million barrels a day.

Given the severity of the breakdown in Saudi-Russia relations after the failure of OPEC+ talks in March, getting all sides back to the table constitutes an achievement in itself. It has required a whirl of international diplomacy to overcome the mutual recriminations over who’s to blame for the industry’s crisis.

Trading Barbs

After Trump first spoke about the prospect of a deal on Friday, Moscow and Riyadh traded barbs about who started a price war that is dumping even more unwanted crude onto world markets. A “productive discussion” between U.S. Energy Secretary Dan Brouillette with his Saudi counterpart Prince Abdulaziz bin Salman appeared to move the process forward.

Category Bahrain, Business, Coronavirus, Dubai, Gulf News, Kuwait, Oman, Qatar, Saudi News | 2020/04/07 latest update at 8:01 PM
Source : Yahoo Finance | Photocredit : Bloomberg
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