World’s top oil producers still have no agreement before major talks on cuts begin

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The world’s top oil producers Saudi Arabia, Russia and the US still seemed at odds on Wednesday before this week’s meetings on potentially big output cuts to shore up crude prices that have been hammered by the coronavirus crisis.

Saudi Arabia and Russia, which fell out when a previous pact on curbing supplies collapsed in March, have signaled they could agree deep cuts to crude output but only if the US and others outside a group known as OPEC+ joined in.

But the US Department of Energy said on Tuesday that US output was already falling without government action, echoing views from the White House that it would not intervene, even as global demand for crude has plunged by as much as 30 percent.

US President Donald Trump said last week a deal he had brokered with Saudi Arabia and Russia could lead to cuts of as much as 15 percent of global supplies, an unprecedented level.

Yet Moscow and Riyadh have yet to publicly indicate any agreement on the level of any reductions or how to distribute them among OPEC+, which includes the Organization of the Petroleum Exporting Countries, Russia and other producers.

“Let’s wait for tomorrow or the day after,” said Kremlin spokesman Dmitry Peskov, when asked about Russia’s position before Thursday’s OPEC+ talks.

Energy ministers from the Group of 20 nations (G20) also hold a video conference.

Moscow, Riyadh and others need to agree on what national production level, or baseline, for calculating cuts, an issue muddied since last month’s acrimonious OPEC+ meeting in Vienna that led to limits being scrapped and race for market share that flooded an already oversupplied market with extra crude.

Saudi Arabia ramped up output to a record 12.3. million bpd in April, up from below 10 million bpd in March. The kingdom’s Gulf allies, Kuwait and the United Arab Emirates, also raised production.

OPEC sources said Riyadh wanted any cuts calculated from April levels. But Russia has said cuts should be based on first-quarter levels.

“The issue is still the baseline,” an OPEC source said.

Asked about what baselines were being negotiated, the source said: “April versus anything else before April.”

Russian TASS news agency said any cuts could last three months starting from May. Others have not indicated how long they could run.

Aggravating the market

Iran, which was exempted from the previous OPEC+ deal, said details such as the baseline and the contributions by the US and others Canada, should have been agreed before any meeting was scheduled.

Iranian Oil Minister Bijan Zanganeh said that, “in the absence of any clear and consensual outcome,” a failure of talks could “aggravate the current low price environment even further.”

Oil prices, which fell to their lowest in almost two decades in March, are still trading at half their level at the end of 2019, before the coronavirus crisis prompted governments to tell people to stay home and fuel demand plummeted.

The US, whose production has surged in recent years with the help of the revolution in shale oil production and helped by past OPEC+ efforts to support prices, has said the decline in its output would take place slowly, over two years.

US Department of Energy projections show US oil output averaging 11 million bpd in 2021, which correlates to about a 2 million bpd decline from the late 2019 peak.

US antitrust law stops producers in the US from reining in output to prop up prices, but state regulators or the federal government can order lower production levels.

US producer Occidental Petroleum said it opposed any production limits introduced by regulators in Texas, the largest-producing US state. Regulators there meet next week to consider production cuts.

Reflecting US political pressures, Republican senators introduced a bill to remove US defense systems and troops in Saudi Arabia unless the kingdom cut output. The senators were due to speak to Saudi officials on Saturday, a source said.

Any final agreement for how much OPEC+ will cut during Thursday’s talks would depend on volumes other producers such as the US, Canada and Brazil offered to cut, OPEC sources said.

Some producers outside OPEC+ have indicated a willingness to help. Energy firms in Canada, home to the world’s third-largest oil reserves, have already been reducing output due to the sharp fall in prices.

Read more:

Russia: Natural decline in oil production is not the same as joint oil cuts

Likelihood of global oil output cut agreement increases as US predicts supply drop

US slashes oil production forecast for 2020 by more than one million barrels per day

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