Russia may be willing to reduce its oil production by as much as 1 million bpd, or a little under 10 percent of its March average but only if the United States joins the cuts, Bloomberg has reported citing sources it said were familiar with the dominant sentiment in the industry.
The report comes on the heels of a verbal escalation between Riyadh and Moscow after comments from Russian government officials prompted Riyadh to accuse Russia of trying to pit it against U.S. shale and blaming Russia of starting the price war by refusing to deepen production cuts precisely to hurt U.S. shale.
This spat may have played a role in the delay of an OPEC+ meeting initially scheduled for Monday to Thursday in hopes that the tension might cool down. Meanwhile, Saudi Arabia has called on Western European producers to join the production adjustment effort and Norway has responded: it will be attending the Thursday meeting along with representatives from Alberta, Canada’s deeply troubled oil province.
The United States, however, has made no official statement concerning its participations in any production cuts. On the contrary, President Trump floated the idea of oil import tariffs, although he mitigated the threat by saying he did not believe he would need to use tariffs.
Last week, however, Trump said he may join talks between Russia and Saudi Arabia, “if need be.” The U.S. President then tweeted that he had spoken separately with Saudi Arabia’s de-facto ruler Crown Prince Mohammed and with Russian President Vladimir Putin and he expected the two to cut a combined 10 million bpd from their production.
Despite the far-fetched nature of this statement and the fact Trump only said he hoped they will cut this much, markets reacted frantically, with many taking the tweet as a signal of a done deal. Oil prices rebounded significantly over the last two days of last weeks before the reality that a cut deal is far from done settled in.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Canadian Drillers Face Nightmare Scenario As Oil Crashes To $5
- The Cheapest Way For Trump To Save U.S. Oil
- Coronavirus Could Lead To Mass Layoffs In Oil And Gas
The United States claims that it is the world’s largest producer of crude oil at 13 mbd. If this is the case, then it should contribute 3 mbd to the collective global cuts with Saudi Arabia offering 2 mbd, Russia 1.5 mbd and the rest of OPEC and non-OPEC producers including Norway and Brazil the remaining 3.5 mbd.
Without US contribution, the coming OPEC+ meeting is doomed.
Still, I am convinced that no matter how big the cuts are, they will have no positive impact on oil prices whatsoever while the coronavirus outbreak is raging.
They will, however, signal to the global oil market that the oil-producing nations of the world are determined to collectively take whatever measures needed to arrest the perilous slide in oil prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London