Deal to Cut Global Oil Production Hangs in the Balance
The worlds top oil-producing nations used the G20 talks on Friday in an attempt to finalize a deal o..
The worlds top oil-producing nations used the G20 talks on Friday in an attempt to finalize a deal on crude oil production cuts aimed at preventing the industry from collapsing.
President Donald Trump has spoken to both Saudi Arabias Crown Prince Mohammed bin Salman and Russian President Vladimir Putin in an attempt to break an impasse between the worlds second- and third-largest oil producers, which have been locked in a bitter price war for weeks.
Happening now: The Extraordinary #G20 Energy Ministers virtual meeting is taking place to discuss the impact of the #COVID19 pandemic on energy markets. pic.twitter.com/sadH0hSySJ
— G20 Saudi Arabia (@g20org) April 10, 2020
A deal still looked uncertain after discussions on Friday, however, as the final details of the agreement threatened to derail the process. A tentative agreement was reached between the OPEC+ nations (which includes Russia) on Thursday to cut 10 million barrels of production per day, or around 10 percent of global capacity.
The double-whammy of low prices and a flooded market have punished oil exporters already suffering the fallout from the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus. Efforts to fight the virus have meant travel bans and industrial shutdowns, compounding over-production in global oil fields to send prices into a tailspin.
An OPEC+ meeting in Vienna at the end of March aimed at agreement on production cuts ended in disarray when Russia and Saudi Arabia could not reach a consensus. Saudi Arabia then decided to rush extra capacity into an already over-supplied market, exacerbating the problem.
“The extreme volatility we are seeing in oil markets is detrimental to the global economy at a time when we can least afford it,” said International Energy Agency Director Fatih Birol in a statement. “Todays oil crisis is a systemic shock that threatens global economic and financial stability.”
In a statement on Friday, U.S. Energy Secretary Dan Brouillette said: “The United States has seen its oil industry gravely impacted. We estimate that by the end of this year, U.S. production will see a reduction of nearly 2 million barrels per day. Some models show even more dramatic figures, for example, up to 3 million barrels per day.”
“Make no mistake,” Brouillette added, “todays crisis transcends the interests of any one nation and requires a swift and decisive response from us all. Failure to act has far reaching consequences to each of our economies.”
Good Friday Deliberations
The deal reached Thursday was almost scuppered by protests from Mexican President Andrés Manuel López Obrador after OPEC+ proposed stinging production cuts of 400,000 barrels per day for Mexican oilfields. López Obrador credited Trump with brokering an agreement for Mexico to reduce the cut to 100,000 barrels—a reduction from 23 percent down to 5 or 6 percent of Mexican production. The United States would undertake cuts of 250,000 barrels per day on Mexicos behalf, López Obrador told reporters in a press conference.
Trump suggested last week that the United States could impose tariffs on oil imports if an agreement could not be reached.
Prices for Brent crude plummeted to as low as $23 per barrel in the aftermath of the CCP virus crisis, though they have rebounded since to close at $31.48 in Thursday trading. Brent had been trading between $50 and $60 per barrel in February.
However, analysts do not expect dramatic increases in crude prices even if a deal can be brokered, as a slump in global demand of around 30 percent will likely continue to outstrip proposed cuts of 12 to 15 percent made on the supply side—at least until economies reopen and factors such as industrial production, the associated shipment of raw materials and finished products, and commuting and travel return to a degree of normality.
