DUBAI/LONDON/MOSCOW: Major oil producers including Saudi Arabia and Russia are likely to agree to cut production at a meeting tomorrow but only if the United States joins the effort, aimed at coping with the disastrous effect of the coronavirus on fuel demand, three OPEC+ sources said. Worldwide oil demand has dropped by roughly 30 percent, or about 30 million barrels a day, at the same time that Saudi Arabia and Russia have been flooding markets with extra supply.
Meanwhile, oil prices rebounded yesterday on fresh hopes an OPEC-led meeting this week will reach an agreement to reduce oversupply and shore up the market. Prices have fallen sharply since expectations for a quick deal to cut output levels were dashed, but the rescheduling to tomorrow of a meeting of major crude producers boosted sentiment.
US benchmark West Texas Intermediate was up 3.83 percent to $27.08 a barrel in Asian morning trade. A barrel of Brent crude, the international benchmark, was trading 2.81 percent higher at $33.98. Prices fell to 18-year lows last week as the market wallowed in oversupply arising from a price war between Saudi Arabia and Russia, which have ramped up production. “Prices recovered some of the early losses, as both Russia and Saudi Arabia suggested they would be willing to cut production but only if the rest of the world followed suit,” ANZ Bank said in a note. “The stumbling block appears to be the US, which is reluctant to join an agreement.”
But with US Energy Secretary Dan Brouillette holding talks with Saudi Arabia and Russia, “the market is hopeful of some sort of agreement”, the bank added.
“Ultimately there is hope that cooler heads will prevail, and producers will reconcile and formulate a response that puts a floor under oil prices,” said AxiCorp global market strategist Stephen Innes.
“Still, the challenge remains to the extent which producers are willing to cut.” Last week, in response to a weeks-long market rout, the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, started talking about cutting production, but want other non-OPEC nations to participate, particularly the United States. “Without the US, no deal,” one of the sources said. Two OPEC sources said tomorrow’s meeting would be held by video conference at 1400 GMT.
The United States has not committed to taking part in any deal, which US President Donald Trump has said could take 10 percent to 15 percent of world supply off the market. US companies cannot coordinate production due to antitrust laws. The White House has said it was encouraging talks between the other countries, instead. Major US oil companies and industry groups are opposed to mandated cuts, which would be an extraordinary step in the United States.
On Friday, G20 energy ministers and members of some other international organizations will hold their own video conference, hosted by Saudi Arabia, a senior Russian source told Reuters. Efforts to get the United States involved in the production cut deal will be on the agenda, the source said.
Russia and Saudi Arabia have long been frustrated that curbs by OPEC and others have left a gap that has been filled by shale oil firms in the United States, which became the world’s biggest producer. That frustration led in part to March’s collapse of an OPEC+ supply deal that has propped up oil prices for three years. US Energy Secretary Dan Brouillette said on Fox Business Network on Monday that US production was already starting to fall due to the plunge in crude prices.
“In the United States we have a free market and the industry will adjust on its own,” he said. US Energy Department officials did not respond immediately to a request for comment. Following the collapse of the OPEC+ deal, Riyadh and Moscow blamed each other and launched a battle for market share, sending oil prices to their lowest in two decades. That has strained the budgets of oil-producing nations and hit higher-cost producers in the United States.
Scrambling to secure a bigger market share, Saudi Arabia raised crude output to 12.3 million barrels per day (bpd) on April 1 and said it planned to export more than 10 million bpd. With by far the world’s biggest reserve of extra capacity, Riyadh has insisted it will no longer carry what it considers an unfair burden of cuts.
While antitrust laws prohibit US oil producers from taking steps to push up oil prices, curbing output would be legal if state regulators or the federal government set lower production levels, antitrust experts said. The US authorities have yet to indicate what, if any, action they might take.
Last week, Russian President Vladimir Putin said OPEC+ cuts could amount to around 10 million bpd, or some 10 percent of global output. Russian production reached 11.29 million bpd in March. A Russian government and an industry source, speaking on condition of anonymity, said 10 percent might not be enough to steady the global oil market given the weakness of demand.
“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” Kirill Dmitriev, one of Moscow’s top oil negotiators, who also heads Russian’s sovereign wealth fund, told CNBC.
Dmitriev was the first to make a public declaration last month about the need for an enlarged supply pact, potentially involving producers outside the OPEC+ group. The Russian energy ministry did not respond to a request for comment. – Agencies