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WASHINGTON, April 9 ― The world's top crude oil producers, Saudi Arabia, Russia and the United States, remained at odds yesterday over how to shore up global crude prices hammered by the coronavirus crisis and a price war, as meetings on the topic loomed this week.
The tensions have raised the chances that global oil nations will again fail to reach a lasting agreement to tighten the spigots as a glut in supply threatens to overwhelm storage tanks and tip drilling companies into bankruptcy.
Saudi Arabia and Russia have signalled they could agree to cuts but only if the United States and others outside a group known as Opec+ chip in. Washington has pushed back, saying US drillers have already reduced output for economic reasons, and that it had no plans to orchestrate further cuts.
“Look, we already cut. If you look at Texas, North Dakota, some of our states that do this very well, they've already cut way back, they've cut back automatically,” US President Donald Trump told a news conference yesterday.
Trump added that he had “lots of good options” if Opec+ fails to reach a deal, but did not elaborate. “We have a tremendously powerful energy industry in this country now, No. 1 in the world, and I don’t want those jobs being lost.”
He has said in the past he could impose import tariffs on oil to help domestic producers. U.S. lawmakers have threatened Saudi Arabia with legislation that would pull economic and military support for the kingdom if it does not stabilise oil prices.
Russia said a natural decline in US oil output due to weak oil prices did not count as a contribution to global production cuts: “These are absolutely different reductions,” Kremlin spokesman Dmitry Peskov said.
The idea that the United States could cooperate with Opec and others to fix global prices was once unthinkable, but has now become a live point of debate after a decade-long drilling boom turned it into the world’s biggest oil and gas supplier.
While US antitrust law prevents oil producers in the United States from colluding to prop up prices, it does not prevent state regulators or the federal government from ordering lower production levels, according to legal experts.
But Trump has been reluctant. He said last week that a deal he had brokered with Saudi Arabia and Russia could lead to cuts of as much as 10 million to 15 million barrels per day or 10 per cent to 15 per cent of global supplies, an unprecedented level, but that Washington made no concessions in return.
He added this week that Opec+ had never asked him to order US cuts, “so we'll see what happens.”
Helping the once-bustling US drilling industry weather the market meltdown is a high priority for Trump in an election year, and his administration has eased environmental enforcement and sought ways to expand credit to hard-hit producers.
Opec+, which includes the Organization of the Petroleum Exporting Countries, Russia and other producers, is scheduled to hold a meeting on Thursday by videoconference.
Energy ministers from the Group of 20 nations (G20) will then meet tomorrow.
Riyadh has yet to publicly indicate any agreement on the level of any reductions or how to distribute them. Sources close to Opec have said there will be no deal without a US cut.
Russia is ready to cut its oil output by 1.6 million barrels per day, according to a TASS news agency report citing an unnamed Energy Ministry official yesterday. A spokeswoman for the ministry said Russia was ready to participate in a deal alongside other countries.
A previous agreement by Opec+ to cut production this year fell apart because of a dispute between Russia and Saudi Arabia, triggering a price war that brought a flood of supply just as demand for fuel was crushed by the coronavirus pandemic.
What’s the baseline?
Another point of contention in the coming talks is that Moscow, Riyadh and others need to agree on the baseline against which to calculate new cuts, an issue muddied since last month's acrimonious Opec+ meeting in Vienna.
Saudi Arabia ramped up output to a record 12.3 million bpd in April, from below 10 million bpd in March.
Opec sources said Riyadh wanted any cuts calculated from April levels. But Russia has said cuts should be based on first-quarter levels.
“The issue is still the baseline,” an Opec source said.
Iran, which was exempted from the previous Opec+ deal, has argued the meetings are premature. It believes details such as the baseline and the contributions by the United States and others should have been agreed beforehand.
Iranian Oil Minister Bijan Zanganeh warned that “in the absence of any clear and consensual outcome”, a failure of talks could “aggravate the current low-price environment even further”.
Oil prices, which fell to their lowest in almost two decades in March, are still trading at half their level from the end of 2019, before the coronavirus crisis prompted governments to tell people to stay home and fuel demand plummeted.
The pressure is being felt in the United States.
The US Energy Information Administration said yesterday that oil output dropped 600,000 bpd last week. Its longer-term projections show US oil output averaging 11 million bpd in 2021, which correlates to about a 2 million-bpd decline from the late 2019 peak.
A group of Republicans in the US House of Representatives told Saudi Crown Prince Mohammed bin Salman yesterday that economic and military cooperation between the two countries was in jeopardy unless the kingdom helped stabilize oil prices by cutting crude output.
“If the Kingdom fails to act fairly to reverse this manufactured energy crisis, we would encourage any reciprocal responses that the US government deems appropriate,” said a letter to the crown prince signed by nearly 50 Republican US Representatives.
Senate Republicans introduced a Bill in March to remove US troops, missiles and defence systems from the kingdom if it did not cut output.
Saudi Arabia's national shipping firm, Bahri, has provisionally chartered at least a dozen supertankers, each capable of carrying about 2 million barrels of crude, to the US Gulf Coast in coming weeks, according to Refinitiv Eikon data and shipping sources. ― Reuters