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Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks during a virtual emergency meeting of energy ministers from the Group of 20 major economies on oil supply cuts to stabilise global markets hit by the coronavirus disease (COVID-19), in Riyadh, Saudi Arabia April 10, 2020.

SAUDI ENERGY MINISTRY/Reuters

Saudi Arabia, Russia and their oil-producing allies were stymied on Friday in the hopes of extracting specific new output cuts from countries outside their fold, such as Canada and the United States, to add to plans for record-setting reductions to rescue prices.

Energy ministers from the Group of 20 developed nations met via video conference to discuss their roles in boosting crude prices that have dropped to 18-year lows, hammering oil-producing economies also struggling with COVID-19. But the Saudi-led proceedings ended with just broad commitments to work collectively to provide stability to energy markets, and the decision to form a focus group to co-ordinate responses.

The meeting was held hours after the Organization of Petroleum Exporting Countries and allied nations, known as OPEC+, arrived at a deal to take 10 million barrels a day of supply off the market – only to have Mexico balk at the last moment. That started intense talks between U.S. President Donald Trump and Mexican President Andres Manuel Lopez Obrador on how the U.S. could contribute to Mexico’s prescribed cut of 400,000 barrels a day and rescue the deal.

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Mr. Trump said on Friday he did not know if OPEC would agree to that.

Seamus O’Regan, Canada’s Minister of Natural Resources, attended the G20 meeting and stressed that the market collapse had already forced his country’s oil producers to shut down large volumes of production. He declined to give details on any potential moves the United States or Canada may have discussed to assist Mexico and save the OPEC+ deal.

“We implored upon all our colleagues to do what they could to achieve price stability. That’s something in everybody’s best interest. I think that’s something that came through very clearly among many participants in the G20 meeting today,” he told reporters.

The OPEC+ deal is not contingent on specific reductions by Canada, the U.S., Norway or others, but its signatories called for other nations to make their own contributions.

Crude has fallen because of a massive drop in fuel consumption as countries enforce physical distancing and restrictions on movement to deal with the novel coronavirus contagion. The situation worsened when the Saudis and Russians launched a battle for market share in early March, unleashing a tidal wave of crude. The OPEC+ deal would end that battle.

The impact has been severe on Canada’s energy sector, which has been forced to slash spending to deal with dwindling cash flow and the destruction of demand as refineries slow manufacturing of jet fuel and gasoline. Canadian companies could shut off more than one million barrels a day of production as storage tanks become full. Royal Bank of Canada analysts have projected that number as high as 1.7 million barrels a day.

Mr. O’Regan acknowledged that the federal government does not have the jurisdiction to dictate oil production levels; that falls to the provinces. He pointed out, however, that deep cuts are already taking place at the corporate level, but for economic reasons. Alberta also has a mandate to curtail output to deal with limited export pipeline capacity.

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Alberta Energy Minister Sonya Savage said the co-ordinated efforts are a positive sign, and show that the world’s oil powers see the current chaos in energy markets as unsustainable. Ms. Savage, who participated in the OPEC+ meeting as an observer, said Alberta had not been asked to contribute further cuts, noting that some analysts peg shut-off output in the province today as high as 700,000 barrels a day.

“With production shutdowns, bankruptcies, layoffs, it’s absolute carnage. At least with the production off – 2.5 million [barrels a day] each from the Saudis and Russia – we’ll see an improvement in that situation," Ms. Savage said in an interview. “It will still take awhile to get the balance after we get out of COVID, but it’s a much, much better situation.”

She predicted that the OPEC+ deal will be finalized, given how much is at stake for oil-producing economies.

On Thursday, oil prices tumbled as early hopes for a much larger cut were dashed. West Texas Intermediate fell 9 per cent to close at US$22.76 a barrel. Western Canada Select heavy blend, a proxy for oil-sands-derived crude, sold for US$3.51 a barrel, according to NE2 Group, far below any company’s ability to operate at break-even levels. Markets were closed for the Good Friday holiday.

The lack of specific new actions by the G20, and any uncertainty still surrounding the OPEC+ deal could prompt another selloff in crude markets, said Jeremy McCrea, Calgary-based analyst at Raymond James. “This type of language that’s being used, everyone sees through it and it doesn’t provide confidence. That’s what this market needed most, and the G20 fell short,” Mr. McCrea said.

Under the OPEC+ deal, the curbs would be relaxed to eight million barrels a day July through December, and to six million from January to April, 2021, as the groups seek to keep oversupply in check as the world recovers.

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The agreements to reduce production should support prices before demand picks up from the COVID-19 shock, said Steve Wood, managing director of Moody’s Investor Service’s oil and gas team. That drop in demand has been estimated as high as 30 million barrels a day, or nearly a third.

“However, the ultimate effect on oil prices will depend on the extent to which countries comply with their production cuts, as well as on the path of economic recovery and restored demand,” Mr. Wood said in a statement.

U.S. Energy Secretary Dan Brouillette told the G20 meeting that it is likely that his country’s industry could shut off more than two million barrels a day. The U.S. government is buying supplies to inject into its strategic petroleum reserve as one way to remove some of the pressure on markets.

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