DUBAI/LONDON: The world’s top crude oil producers Saudi Arabia, Russia and the United States remained at odds on Wednesday over how to shore up global crude prices hammered by the coronavirus crisis and a price war, as meetings on the topic loomed this week.
The tensions have raised the chances that global oil nations will again fail to reach a lasting agreement to tighten the spigots as a glut in supply threatens to overwhelm storage tanks and tip drilling companies into bankruptcy.
Saudi Arabia and Russia have signalled they could agree to cuts but only if the United States and others outside a group known as OPEC+ joined in. Washington has repeatedly pushed back saying US drillers have already reduced output for economic reasons, and that it had no plans to orchestrate further cuts.
US lawmakers, meanwhile, have threatened Saudi Arabia with legislation that would pull economic and military support for the kingdom if it does not stabilize oil prices.
Asked if a natural decline in US oil output due to weak oil prices could count as a contribution to global production cuts, Kremlin spokesman Dmitry Peskov said: “These are absolutely different reductions.”
The idea that the United States could cooperate with OPEC and others to fix global prices was once unthinkable, but has now become a live point of debate after a decade-long drilling boom turned it into the world’s biggest oil and gas supplier.
While US antitrust law prevents oil producers in the United States from colluding to prop up prices, it does not prevent state regulators or the federal government from ordering lower production levels, according to legal experts.
But US President Donald Trump has been reluctant. He said last week that a deal he had brokered with Saudi Arabia and Russia could lead to cuts of as much as 10-15 million barrels per day or 10-15pc of global supplies, an unprecedented level, but that Washington made no concessions in return.
He added this week that OPEC+ had never asked him to order US cuts, “so we’ll see what happens”.
Helping the once-bustling US drilling industry weather the market meltdown is a high priority for Trump in an election year, and his administration has eased environmental enforcement and sought ways to expand credit to hard-hit producers.
OPEC+, which includes the Organization of the Petroleum Exporting Countries, Russia and other producers, is scheduled to hold a meeting on Thursday by a video conference. Energy ministers from the Group of 20 nations (G20) will then meet on Friday.
Riyadh has yet to publicly indicate any agreement on the level of any reductions or how to distribute them. Sources close to OPEC have said there will be no deal without a US cut.
Russia is ready to cut its oil output by 1.6 million barrels per day, according to a TASS news agency report citing an unnamed Energy Ministry official on Wednesday.
A spokeswoman for the ministry said Russia was ready to participate in an output reduction deal in line with the share in crude production of the countries involved.
A previous agreement by OPEC+ to cut production this year fell apart because of a dispute between Russia and Saudi Arabia, triggering a price war that brought a flood of supply just as demand for fuel was crushed by the coronavirus pandemic.
WHAT’S THE BASELINE?
Another point of contention in the coming talks is that Moscow, Riyadh and others need to agree on the baseline against which to calculate new cuts, an issue muddied since last month’s acrimonious OPEC+ meeting in Vienna.
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.”
Iran, which was exempted from the previous OPEC+ deal, has argued the meetings are premature.
The country said details such as the baseline and the contributions by the United States and others should have been agreed before any meeting was scheduled.
Iranian Oil Minister Bijan Zanganeh warned 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 LCOc1, which fell to their lowest in almost two decades in March, are still trading at half their level from the end of 2019, before the coronavirus crisis prompted governments to tell people to stay home and fuel demand plummeted.
The pressure is being felt in the United States. 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.