Apr 9, 2020 - Energy & Environment

OPEC+ and G20 energy meetings mark zero hour for oil diplomacy

illustration of an oil barrel next to an earth
Illustration: Aïda Amer/Axios

The next two days will be pivotal for determining whether large oil-producing countries can partially stabilize an industry reeling from very low prices and the historic, coronavirus-fueled collapse in demand.

Driving the news: The OPEC+ group led by Saudi Arabia and Russia begin meeting remotely later Thursday morning to discuss production cuts, to be followed by a virtual Friday meeting among G20 energy ministers that includes the U.S.

Where it stands: Russia has signaled that it's willing to cut production by 1.6 million barrels per day, or roughly 15%, per multiple reports. Saudi Arabia was also discussing a cut of 15% to 17% on Thursday, delegates said, asking not to be identified because the talks were private, according to Bloomberg.

But, but, but: It's not clear how much the U.S. posture might limit the scope of a potential deal or muddy the path to reaching one.

  • President Trump and the Energy Department are not offering firm commitments, instead pointing to what are slated to be market-driven declines in U.S. production.
  • DOE's independent statistical arm projects that U.S. production will start falling significantly, dropping to roughly 11 million barrels by year-end and staying there in 2021. That's roughly 1.8 million barrels per day below levels at the end of 2019.

Reality check: Even a new deal is unlikely to bring prices back to anything close to where they were before the outbreak spread, due to the near-term demand loss that some analysts see in the range of 25 million–30 million barrels per day.

  • The global benchmark Brent crude has risen significantly in recent days on the prospect of an agreement, but at roughly $34-per-barrel, it's around half the early January price.

What they're saying: Goldman Sachs' analysts, in a new note, say that a coordinated cut is "now more likely than not."

  • But "the key question will be whether its size and timing will improve global oil balances sufficiently to support prices above current levels."
  • Even a coordinated cut of 10 million bpd, they write, would not be sufficient. And, a larger cut in the 15 million range would be a heavy lift at the talks.
  • Overall, the magnitude of the demand shock points to more near-term pressure on prices, they note. Reuters has more on their analysis.

The intrigue: U.S. lawmakers are ramping up pressure on Saudi Arabia ahead of the talks.

  • Yesterday nearly 50 House GOP lawmakers, led by Minority Whip Steve Scalise, wrote to Saudi Crown Prince Mohammed bin Salman urging cuts.
  • The letter include the not-so-subtle warning: "The U.S. military presence in the Middle East region has maintained the stability that provides for the economic prosperity and ensures the security of our two nations."

Plus, the White House has not ruled out the prospect of imposing tariffs on Saudi and Russian oil.

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