Global oil producers scramble to stem price collapse
Saudi Arabia, Russia and other large oil producers are racing to negotiate a deal to stem the historic price rout, as diplomats pressed to get the US to join the coalition.
“President Putin and the Russian side in general are keen to engage in constructive negotiations, which is the only way to stabilise the international energy market,” Kremlin spokesperson Dmitry Peskov said in a pre-recorded interview aired on state TV on Sunday. Failure would mean a collapse in prices.
The talks still face obstacles: a meeting of producers from Opec+ and beyond — delayed from Monday — is only tentatively scheduled for Thursday as negotiators work against the clock. The aim, first revealed by President Donald Trump, is to cut oil production by about 10% — the biggest co-ordinated reduction.
Oil has fallen 50% in 2020, as the economic effects of the pandemic have knocked out about a third of global demand. The price crash is so dramatic that it is threatening the budgets and political stability of oil-dependent nations, the existence of US shale producers, and jobs in an industry already in turmoil. Even the International Energy Agency, which represents nations that consume oil, is calling for action.
Saudi Arabia and Russia both say they want the US, which has become the world’s largest producer thanks to the shale revolution, to join the cuts. But Trump had only hostile words for Opec on Saturday, and threatened tariffs on foreign oil.
“If the Americans don’t take part, the problem which existed before for the Russians and Saudis will remain — that they cut output while the US ramps it up, and that makes the whole thing impossible,” said Fyodor Lukyanov, head of the Council on Foreign and Defence Policy, a research group that advises the Kremlin.
It is not clear if Russia and Saudi Arabia will require the US to publicly commit to cut production — a challenge in the private, fragmented American industry — or if a compromise gesture would be enough. Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think-tank, said Moscow would like the US to lift sanctions as a compromise.
Russia and Saudi Arabia — which sparred publicly over the weekend — have also disagreed about how they would calculate the cuts, according to a person familiar with the talks.
Oil-producing countries know that either they reach a diplomatic accord to cut, or the market will force production shutdowns, as storage fills up both on land and at sea.
In more signs of progress, Norway, which has not joined any production cuts since 2002, signalled over the weekend it was ready to cut unilaterally its output if others did. And a senior official from the oil-rich Canadian province of Alberta said it will dial into the oil meeting this week. Iraq’s oil minister said he was optimistic about a deal.
Any agreement will require diplomatic agility at a time when nations are devoting huge resources to fighting the pandemic itself. It is also a battle of wills between Putin, Saudi Crown Prince Mohammad bin Salman, and Trump. On all sides, there are manoeuvres to avoid blame if negotiations fail.
Trump said on Saturday at a White House press briefing he has opposed Opec his whole life, and characterised it as a cartel, or monopoly.
“I don’t care about Opec,” he said. He threatened to use tariffs if needed to protect the domestic oil industry, even as he predicted that Saudi Arabia and Russia would come to an agreement.
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