DUBAI/LONDON/MOSCOW (Reuters) – OPEC and its allies are working on a deal for an unprecedented oil production cut equivalent to around 10% of global supply, an OPEC source said, while also waiting to see what action the United States would take as President Donald Trump met with oil companies on Friday.
FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. REUTERS/Todd Korol/File Photo
The oil market has crashed, with prices falling to $34 a barrel from $65 at the beginning of the year, as a result of the coronavirus pandemic. Fuel demand has dropped by roughly a third, or 30 million barrels per day, as billions of people worldwide restrict their movements.
A global deal to reduce production by as much as 10 million to 15 million barrels per day would require participation from nations that do not exert state control over output, including the United States, now the world’s largest producer of crude.
Trump met with U.S. oil producers Friday afternoon at the White House. “We’ll work this out and we’ll get our energy business back,” he told reporters before the talks began.
Trump said on Thursday he did not make any concessions to Saudi Arabia and Russia, such as agreeing to a U.S. domestic production cut, a move forbidden by U.S. antitrust laws. Some U.S. officials have suggested U.S. production was set for a steep decline anyway because of low prices.
The meeting of OPEC and allies such as Russia has been scheduled for April 6, but details were thin on the exact distribution of production cuts. No time has yet been set for the meeting, OPEC sources said.
OPEC producers were waiting to see if the United States commits to any efforts to stabilize the markets, two OPEC sources said. They said a deal must include producers from outside OPEC+, an alliance which includes OPEC members, Russia and other producers, but excludes oil nations such as the United States, Canada, Norway and Brazil.
“The U.S. needs to contribute from shale oil,” an OPEC source said. Russia has long expressed frustration that its joint cuts with OPEC were only lending support to higher-cost U.S. shale producers.
Russian President Vladimir Putin said on Friday that his country was ready to cut production along with OPEC and the United States, while still blaming Saudi Arabia for the market’s collapse.
Russia’s energy minister, Alexander Novak, told Russian state media that he understands the United States has legal restrictions on output cuts, but it should still be flexible.
White House economic adviser Larry Kudlow said Trump will fight any international collusion in energy markets that would hurt U.S. producers, but the administration cannot dictate to oil producers.
“Oil companies, seeing a decline in price are going to pull back on production,” he said, adding that he sees no reason why Trump’s talks with Saudi Arabia and Russia on oil will not “bear fruit.”
Canadian Prime Minister Justin Trudeau said he has had direct communication with OPEC and the United States. Jason Kenney, the premier of Alberta, Canada’s primary oil-producing province, said on Thursday that Alberta was open to joining a production-cut deal.
The Norwegian oil and energy ministry declined to comment on Friday on whether Western Europe’s largest producer could cut output to support prices.
The International Energy Agency warned on Friday that a cut of 10 million barrels per day would not be enough to counter the huge fall in oil demand. Even with such a cut, inventories would increase by 15 million barrels per day increase in the second quarter, said Fatih Birol, the head of the agency.
OIL PRICES RECOVER, FOR NOW
Oil prices recovered from the lows of $20 per barrel this week with Brent settling at $34.11 per barrel on Friday, but far below the $66 closing level at the end of 2019.
Prices plunged in early March after Russia and Saudi Arabia could not come to an agreement to curb output. The Saudis shocked the oil industry with an aggressive series of steps to take back market share that included cutting export prices, pumping at maximum production and trying to sell cheaper oil to refiners that buy Russian crude.
The oil market was dealt a heavier blow by the freefall in demand due to the coronavirus pandemic, which sent crude prices to their lowest levels since 2002.
The oil-price crash spurred regulators in the U.S. state of Texas, the heart of the country’s oil production, to consider regulating output for the first time in nearly 50 years.
Major global producers have already scaled back production, as fuel demand has dropped precipitously and storage is rapidly filling. This past week, U.S. drillers idled more rigs in one week than at any time in the last five years.
“We expect 10 million bpd of oil production be shut in the next quarter. If you cannot sell it and you cannot store it, then you cannot produce it,” said Jim Burkhard, head of crude oil research at IHS Markit.
Reporting by Rania El Gamal, Alex Lawler, Olesya Astakhova and Ahmad Ghaddar; writing by Shadia Nasralla and Dmitry Zhdannikov; editing by Pravin Char, Elaine Hardcastle and Leslie Adler