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The United States and the G20 are preparing to back plans for the largest oil supply deal in history, backing production cuts from OPEC and Russia and offering additional contributions to stabilize an industry devastated by the coronavirus.
Oil demand has fallen by about a third, as some of the world’s largest economies have effectively closed down to try to stop the spread of the virus, driving oil prices to their lowest level in 18 years and threatening millions jobs in the energy sector and long-term damage to supplies. .
Saudi Arabia and Russia, whose alliance leads the so-called Opec + group, agreed Thursday to cut production by a record 10 million barrels per day, with contributions from G20 members, including the purchase of crude to fill emergency reserves. and investment cuts in new oil. Supplies: The total is expected to further increase to 15 million b / d notional, or nearly 15 percent of global supplies.
At the online emergency meeting of the G20 energy ministers on Friday, Fatih Birol of the International Energy Agency said that the virus “shock waves” had created the oil collapse and threatened “global economic stability” .
“The oil world has seen many shocks over the years, but none has affected the industry to the extent that we are witnessing today,” said Birol, who heads the world’s leading energy body.
“No one should harbor the idea that these measures provide a quick solution. . .[But]Like the effect of confinement on the spread of Covid-19, actions to address the oil market imbalance will help reduce the peak and flatten the curve. “
The expected deal will mark a diplomatic victory for United States President Donald Trump, who pressured Saudi Arabia, the most powerful member of OPEC, and Russia to end a month-long price war that exacerbated the crisis in the United States. energy markets.
On Thursday and Friday, he held talks with Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin, and threatened tariffs on his oil sales if they did not reach an agreement.
North American output is already falling due to the collapse in oil prices, but the United States and Canada failed to commit to additional government-mandated supply restrictions, instead signaling large-scale cuts in capital spending by private energy companies.
Dan Brouillette, the US energy secretary, said at the conference that he estimated that US oil production would drop by almost 2 million b / d this year, or at least 10 percent of the country’s production.
“This is a time for all nations to seriously examine what each can do to correct the supply / demand imbalance,” said Brouillette.
The talks were still ongoing on Friday afternoon, UK time, after more than three hours, and some minor issues were resolved before a statement was issued, according to a person familiar with the talks. But the group was still expected to endorse the broad plan, the person said.
Roger Diwan of IHS Markit said the magnitude of the crisis had forced the United States to offer at least support for supply cuts, despite Trump’s animosity towards OPEC. She has frequently blamed him for trying to raise oil prices to the detriment of American drivers.
“Reality and pragmatism have finally been established,” Diwan said, adding that the supply agreement was “approximately seven times greater than the action taken during the 2008-2009 financial crisis.”
“This gigantic cut is dictated by an even greater collapse in demand, forcing all world producers to intervene collectively to avoid a collapse of the oil industry.”
Despite the support of the G20, doubts remain that the measures taken will be sufficient. Over-supply still threatens to maximize storage facilities globally in a matter of months, even if supply cuts have been time consuming.
Potentially, that could force the uncoordinated closure of the oil fields, which can cause long-term damage to reservoirs and future supplies.
Widespread bankruptcies are still expected in the US shale sector. USA, which threatens the US position. USA As a major oil producer and the Trump doctrine of “US energy dominance.”
Oil traders are also skeptical about counting production cuts caused by lower prices as contributions to reduce supply, as they would happen regardless of any deal.
Brent crude, the benchmark for oil, initially rebounded on Thursday before falling nearly 15 percent from its peak, back to about $ 30 a barrel.
It traded at $ 70 a barrel as recently as January, before collapsing to around $ 20 earlier this month. The markets are closed on Fridays for Easter.
But an oil market in which the world’s most powerful energy producers are coordinating, at least to some extent, is considered more stable than the free-falling one.
“Even if it is poorly implemented, the deal is substantial and will make a difference in the market,” said Ann-Louise Hittle of Wood Mackenzie.
The crisis has forced a rapprochement between Saudi Arabia and Russia, which launched an oil price war after Moscow rejected calls to cut production in early March, before the extent of the collapse in demand was fully understood.
Some analysts question whether the cooperation will survive beyond the crisis. Mexico delayed the OPEC + deal on Thursday by refusing to make major cuts, at one stage threatening to break the deal.
Alexander Novak, Russian energy minister, said in a statement to the meeting that “the role of the G20 is to comprehensively support these efforts [agreed by Opec+]”
“At this difficult time, all states must act in a spirit of partnership and solidarity.”
Additional reports from Jude Webber in Mexico City
