Top oil nations pushed to finalize a deal on sweeping oil cuts at G20 talks on Friday to lift prices slammed by the coronavirus crisis with Russia and Saudi Arabia taking the lion’s share and the United States showing unusual willingness to help out.
Riyadh, Moscow and its allies, which make up the informal OPEC+ group, had forged a pact to curb crude production by the equivalent of 10% of global supplies in marathon talks on Thursday and said they wanted others to cut a further 5%.
But efforts to conclude the OPEC+ deal hit the buffers when Mexico insisted it would only cut its output by a quarter of the amount demanded by OPEC+, although Mexico’s president said Washington had offered to make extra cuts on his behalf.
President Donald Trump, who had threatened Saudi Arabia with oil tariffs if it didn’t fix oversupply in the market, said the United States was willing to help Mexico by picking up “some of the slack”, adding that Washington expected to be reimbursed.
Oil markets were closed on Friday when the G20 energy minister held a video conference, hosted by Saudi Arabia, but prices had failed to rally after Thursday’s talks on cuts – which would be the biggest in history – as a 15% cut in global supplies still leaves a huge overhang of oil when demand has plunged 30%.
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 U.S. 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,” U.S. Energy Secretary Dan Brouillette told the G20 talks.
The OPEC+ pact, which was conditional on Mexico signing up, would see 10 million barrels per day (bpd) of oil removed, with OPEC+ sources calling for an additional 5 million bpd to be withdrawn by the United States and others.
Norway and Canada, both outside OPEC+, have suggested they could cut if the deal was implemented.
Brouillette said U.S. oil output could fall by between 2 million and 3 million bpd by the end of 2020. Although not a formal cut, it represents a bigger drop over a shorter period of time than U.S. officials previously indicated.
Kremlin spokesman Dmitry Peskov said action involving others was “unavoidable”, even though he acknowledged U.S. 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.
’HINGING ON MEXICO’
Mexican President Andres Manuel Lopez Obrador said Trump agreed to help by cutting extra U.S. output after Mexico offered OPEC+ a cut of just 100,000 bpd, not the 400,000 bpd demanded.
Lopez Obrador 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 and more about volume because of its hedging programme, which protects it against price falls.
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.
The crisis in the oil market has pushed Russia and Saudi Arabia to patch up differences after their acrimonious OPEC+ meeting in March where a dispute over how best to tackle falling prices led them to scrap their existing pact on production restraint that had helped balance the market for three years.
The new OPEC+ deal envisaged all members reducing output by 23%, with Saudi Arabia and Russia each cutting 2.5 million bpd and Iraq cutting over 1 million bpd in May-June.
Riyadh and Moscow agreed that their cuts would both be calculated from an October 2018 baseline of 11 million bpd, even though Saudi supplies surged to 12.3 million bpd this April.
Under the plans, OPEC+ would ease cuts to 8 million bpd from July to December and relax them further to 6 million bpd between January 2021 and April 2022, OPEC+ documents showed.
UBS said the cuts were still not enough. “We still see Brent falling to $20 per barrel or lower in the second quarter of 2020,” UBS said.
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