Global oil deal elusive
‘Not where we need to be,’ says Canada’s O’regan, as Saudis suffer string of setbacks
A global deal to cut oil production and save the market from a coronavirus- induced breakdown proved elusive on Friday as a diplomatic initiative led by Saudi Arabia suffered repeated setbacks.
After two days of talks, the kingdom still hadn’t resolved differences with Mexico that would allow its agreement for a record 10 million barrel-a-day supply reduction to proceed, delegates said.
Negotiations continued at a high level, with some progress, they said, asking not to be named because the talks were private.
Earlier in the day, a meeting of energy ministers from the Group of 20, including Canada’s Natural Resources Minister Seamus O’REgan, ended with a statement that supported measures to stabilize the market but didn’t commit to any specific supply reductions, according to a draft of the communique. The cartel had been hoping G- 20 members including the U. S. and Canada could contribute another 5 million barrels a day of cuts.
These diplomatic obstacles cast doubt on efforts to revive the market from a debilitating slump in prices to the lowest in almost two decades, which has exposed governments and companies around the world to severe financial pressure.
It was left up to Saudi Energy
Minister Prince Abdulaziz bin Salman and U. S. President Donald Trump — who instigated the whole deal — to salvage something.
“We are trying to get Mexico, as the expression goes, over the barrel,” Trump said in a White House news conference on Friday.
The G20 call “was about finding the mechanisms to achieve price stability,” O’regan told reporters in a teleconference shortly after the meeting ended.
All countries agreed that their economies needed a “well-functioning and stable oil market” and agreed to set up a focus group to coordinate the Group of 20 response going forward.
“We’re not where we need to be yet,” he added, saying oil curtailment “numbers” had not been discussed.
If the deal can be finalized, the proposed OPEC+ cuts would dwarf any previous market interventions. They would also end the destructive price war between Riyadh and Moscow that’s flooded the market with crude just as demand collapses because of the coronavirus lockdown.
“Even if poorly implemented, the agreement is substantial, and will make a difference to the market,” said Ann- Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. Partial compliance of the kind that Mexico is demanding “won’t stop this production agreement from having a big — and swift — impact on supply and demand fundamentals.”
All but one nation among the Organization of Petroleum Exporting Countries and its allies endorsed the production cut equivalent to about 10 per cent of global supply. Mexico insisted that it could only cut by 100,000 barrels a day, not the 400,000 OPEC+ was asking for and blocked passage of Thursday’s deal.
On Friday morning, Mexican President Andres Manuel Lopez Obrador said he had resolved the matter in a phone call with Trump. The U. S. would make an additional 250,000 barrels a day of cuts on Mexico’s behalf,
Lopez Obrador said at a press conference.
Trump said he had agreed to “help Mexico along” in making a deal with Russia and Saudi Arabia. The U. S. will make up the difference between the 100,000 barrels a day Mexico is able to cut and the 400,000 requested by OPEC+, he said.
Russia appeared satisfied. Kremlin spokesman Dmitry Peskov told reporters in Moscow that Putin considers the OPEC+ deal to be fully agreed and regards it “very positively.” However, there was no indication Saudi Arabia had accepted the proposal.
OPEC+ has been put under intense pressure to do a deal by the U. S. president and American lawmakers, who fear thousands of job losses in the U.S. shale patch. Yet Trump hasn’t promised to make deliberate production cuts. Instead, he will let market forces do their work, allowing low prices to deliver “automatic” output curbs.
G- 20 Meeting
“The extreme volatility we are seeing in oil markets is detrimental to the global economy at a time when we can least afford it,” said Fatih Birol, the head of the International Energy Agency, who’s been a key figure in the diplomatic effort to broker a global deal.
If Saudi Arabia can overcome obstacles and lead the world to a 15 million barrel-aday production cut, it would be a historic achievement. However, it would also be just a fraction of the 20 million to 35 million barrels a day in estimated global demand losses as billions of people stay confined to their homes and businesses close to slow the spread of the coronavirus.