DUBAI: Top oil nations were finalising a deal at G20 talks on Friday for big output cuts to lift prices slammed by the coronavirus crisis with Russia and Saudi Arabia taking a lion’s share and signs the United States might take unprecedented moves to help.
Riyadh, Moscow and its allies, which make up the informal OPEC+ group, had forged a pact to curb crude production by the equivalent of 10pc of global supplies in marathon talks on Thursday and said they wanted others to cut a further 5pc.
But efforts to conclude the OPEC+ deal hit the buffers when Mexico refused to sign up in full.
However, the Mexican president said Donald Trump had told him he might make cuts on Mexico’s behalf, even though the US president has given no public indication Washington would join in the cuts and has instead threatened Saudi Arabia with tariffs and other measures if it did not resolve the oil market crisis.
Major oil markets were closed on Friday as the G20 energy minister held a video conference, hosted by Saudi Arabia, but prices failed to rally after Thursday’s cuts — the biggest in history — as a 15pc cut in global supplies still leaves a huge overhang of oil when demand has plunged 30pc.
Measures to curb the spread of the coronavirus has dried up demand for fuel for planes and cars, straining budgets of oil producing nations and hammering the US shale oil industry that is more vulnerable to low oil prices due to its higher costs.
“We call on all nations to use every means at their disposal to help reduce the surplus,” US Energy Secretary Dan Brouillette told the G20 talks, adding that it was “extremely disappointing” that Moscow and Riyadh had not finalised a deal.
The OPEC+ pact, if Mexico signs up, would see 10 million barrels per day (bpd) of oil removed, with an additional 5 million bpd withdrawn if the United States and others joined. Norway and Canada, both outside OPEC+, have indicated they could cut.
Brouillette said US oil output could fall by between 2 million and 3 million bpd by the end of 2020, although Russia has previously said such a natural decline in output was not the same as a formal cut.
Kremlin spokesman Dmitry Peskov said producers were working to win over Mexico and said action involving others was “unavoidable”, even though he acknowledged US law barred American producers from joining any price cartel.
Trump and Russian President Vladimir Putin held talks on Friday that included discussing the energy market.
Suggesting a softening US line, Mexican President Andres Manuel Lopez Obrador said Trump had agreed help out by cutting additional US output after Mexico offered OPEC+ a cut of just 100,000 bpd, a quarter of what the group demanded.
The Mexican president said Trump had “very generously said to me that they were going to help us with the additional 250,000 (bpd) to what they are going to contribute.” Mexico, which has long been in a standoff with Washington over Trump’s plan to build a wall between the two countries, cares less about low oil prices because of its unique hedging programme, which protects it against price falls.
“This whole agreement is hinging on Mexico agreeing to it,” Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters, adding he hoped it would “see the benefit of this agreement not only for Mexico but for the whole world.
The head of the International Energy Agency, Fatih Birol, said importing countries could offer some support to the market by making extra purchases of crude for strategic reserves.
Brouillette also said the United States would help demand by opening its strategic reserve to store as much oil as possible.
But there is only so much importers can buy when the world’s storage capacity on land and at sea is rapidly filling up.
Published in Dawn, April 11th, 2020