DUBAI/MOSCOW/WASHINGTON (Reuters) – U.S President Donald Trump said on Thursday he had brokered a deal with top crude producers Russia and Saudi Arabia to cut output and arrest an oil price rout amid the global coronavirus pandemic, though details of how the cut would work were unclear.
Trump said the two nations could cut output by 10 to 15 million barrels per day (bpd) – an unprecedented amount representing 10% to 15% of global supply, and one that could necessitate the participation of nations outside of OPEC and its allies.
A senior U.S. administration official familiar with the matter said Trump would not formally ask U.S. oil companies to contribute to the production cuts, a move which is forbidden by U.S. antitrust legislation. [nL1N2BQ1MS]
Russia and Saudi Arabia have been at odds since early March, when the two nations failed to agree on a deal curbing output as the coronavirus spread around the globe. The pandemic has worsened since, freezing economic activity and sending oil prices into a tailspin as producers confronted the prospect of a dramatic fall in demand with a flood of unwanted oil supply.
Saudi Arabia, the de facto head of OPEC, called on Thursday for an emergency meeting of OPEC and non-OPEC oil producers, an informal grouping known as OPEC+, state media reported, saying it aimed to reach a fair agreement to stabilize oil markets. Trump is separately set to meet with U.S. oil industry executives on Friday.
Global oil demand is expected to fall by about 30 million bpd in April, or about one-third of daily consumption, as some 3 billion people have been put in lockdown to slow the spread of the coronavirus pandemic, which has sickened nearly 1 million people worldwide and killed nearly 50,000.
The immense decline in demand sent oil prices to their lowest levels since 2002, close to $20 per barrel, hitting budgets of oil producing nations and dealing a huge blow to the U.S. shale oil industry, which cannot compete at low prices.
The downward pressure has been exacerbated by the battle for market share between Russia and Saudi Arabia. Russia rejected the Saudi proposal to take supply off the market in part because it has cut its own output for years while U.S. production grew to a record 13 million bpd, gobbling up more market share.
Russian Energy Minister Alexander Novak said on Thursday that Moscow was no longer planning to raise output and said it was ready to cooperate with the Organization of the Petroleum Exporting Countries and other producers to stabilize the market.
It was not clear when Saudi Arabia’s proposed emergency OPEC meeting could be held.
“This invitation comes within the framework of the kingdom’s constant efforts to support the global economy in this exceptional circumstance, and in appreciation of the U.S. president’s request and the U.S. friends’ request,” the state news agency SPA reported.
A meeting could represent a thaw in Saudi-Russia tensions. A senior Gulf source familiar with Saudi thinking told Reuters that Russia’s opposition to its proposal to deepen output cuts was the cause of market turmoil.
At the time of the deal’s collapse, OPEC and its allies were collectively cutting output by about 1.7 million bpd – making a 10-to-15 million-bpd cut a big hurdle unless it brought in other major worldwide producers outside of the cartel.
Market observers were shocked by the swift movements by Saudi Arabia when the three-year-deal collapsed, as it quickly ramped up production, cut its official selling prices for its crude, and chartered tankers to deliver shipments worldwide.
“This is terrifically damaging to them all. I think to the extent that the Saudis can get some cooperation, I think they would be willing to lead the way,” said John Kilduff, a partner at hedge fund Again Capital in New York.
The downturn in demand is forcing producers to curtail drilling and well completion activities. That is expected to accelerate as refiners are faced with gasoline and jet fuel barrels going unsold, and storage rapidly fills worldwide.
“I don’t think this does anything in the near term. Our pipelines have told us they don’t have room for our barrels,” said Bob Watson, chief executive of U.S. shale producer Abraxas Petroleum, based in San Antonio, Texas. Within eight weeks there will be major issues as production outstrips storage capacity, he said.
Major global oil producers, including Chevron Corp (CVX.N), Brazil’s Petrobras and Royal Dutch Shell (RDSa.L), have announced plans to sharply scale back production.
The free-fall in prices has spurred regulators in the U.S. state of Texas, the heart of that country’s oil production, to consider regulating output for the first time in nearly 50 years.
Brent oil prices stood 18% higher at $29.22 per barrel at 2:12 p.m. ET (1812 GMT), having earlier risen to as high as $36.29. U.S. benchmark WTI crude was 16% higher at $23.53.
Even with Thursday’s surge, Brent is still less than half its $66 closing level at the end of 2019.
Reporting by Rania El Gamal in Dubai, Vladimir Soldatkin in Moscow and Jeff Mason in Washington; additional reporting by Jessica Resnick Ault and Laila Kearney in New York; Writing by Dmitry Zhdannikov and David Gaffen; Editing by Edmund Blair and Tom Brown