FILE PHOTO: The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. REUTERS/Angus Mordant/File Photo
April 9, 2020
By Rania El Gamal, Olesya Astakhova and Ahmad Ghaddar
DUBAI/MOSCOW/LONDON (Reuters) – OPEC and Russia will discuss record oil output cuts on Thursday to support prices hammered by the coronavirus crisis but talks are complicated by internal disagreements and the reluctance of the United States to join in any action.
Global fuel demand has plunged as much as 30% as measures to fight the virus have grounded aircraft, reduced vehicle usage and curbed economic activity.
Benchmark Brent crude oil prices <LCOc1> hit an 18-year low last month and are trading around $34 a barrel, half their level at the end of 2019, dealing a severe blow to budgets of oil producing nations and high-cost U.S. shale oil industry. [O/R]
U.S. President Donald Trump said last week a deal he had brokered with OPEC leader Saudi Arabia and Russia could lead to cuts of 10 million to 15 million barrels per day (bpd), or 10% to 15% of global supplies, an unprecedented reduction.
But Washington has yet to show it is ready to take part.
Kremlin spokesman Dmitry Peskov said a new deal on output cuts was “hardly possible” without others participating.
Ministers from OPEC+, which groups the Organization of the Petroleum Exporting Countries, Russia and other oil producers, as well as additional participants, will discuss the issue in a video conference at 1400 GMT. The United States was invited.
Riyadh and Moscow, who fell out when a previous pact on curbing supplies collapsed in March, have signalled that a deal on cuts would depend on the United States reducing output too.
Trump has been reluctant to mandate cuts in domestic supply so far, saying production had been falling naturally because of low prices anyway. Russia said on Wednesday that such declines would not count as a proper cut.
Moscow and Riyadh are also struggling between themselves to agree on the levels from which output should be cut with the kingdom insisting on April, the first month of a large hike in its output, while Moscow insists on the first quarter.
“I’m not sure how Russia and Saudi Arabia would be able to iron out their differences today, it all could be stretched out,” one Russian source told Reuters, a sentiment echoed by two OPEC sources.
Two Russian sources said the maximum Russian cut would be 2 million bpd or around 17% of its output. Saudi Arabia has yet to indicate how much it is prepared to cut.
Goldman Sachs and UBS both said on Thursday the suggested cuts, however deep, would not be enough to address a massive decline in global demand and predicted that oil prices could fall back to $20 per barrel or even lower.
“Ultimately, the size of the demand shock is simply too large for a coordinated supply cut,” Goldman said in a note.
Trump said on Wednesday he had many options if Saudi Arabia and Russia failed to reach a deal on Thursday.
U.S. senators have previously called on the White House to impose sanctions on Riyadh, pull out U.S. troops from the kingdom and impose import tariffs on Saudi oil.
Thursday’s OPEC+ talks will be followed by a meeting of energy ministers from the Group of 20 nations (G20) on Friday.
To figure out how a cut would be shared among producers, Moscow, Riyadh and others would need to agree on what output levels to use as a baseline for calculating cuts.
That issue has been muddied by a battle between Saudi Arabia and Russia for market share that erupted after an acrimonious OPEC+ meeting in Vienna in March.
At that meeting, Russia refused to participate in cuts proposed by Saudi Arabia in response to the coronavirus crisis. In response, Riyadh said it would pump at maximum capacity and flooded an already oversupplied market with extra crude.
Saudi Arabia ramped up output to a record 12.3. million bpd in April, up from below 10 million bpd in March. The kingdom’s Gulf allies, Kuwait and the United Arab Emirates, also raised production.
Russian TASS news agency said any cuts could last three months starting from May.
The largest one-off cut OPEC has ever agreed till now was 2.2 million bpd in 2008.
(Additional reporting by Alex Lawler, Shadia Nasralla, Vladimir Soldatkin, Sonali Paul; Writing by Dmitry Zhdannikov; Editing by Jason Neely and Edmund Blair)