Saudi Arabia, Russia, OPEC countries and the United States are hoping this week a deal can be reached on production cuts to prevent the price of oil from falling further on international indices, but some analysts and market observers are skeptical that such a deal can come together given the current market dynamics.
All producers want to see oil prices higher. Crude prices have fallen 50% this year, as the economic effects of the pandemic have knocked out about a third of global demand, and an oil price war between Saudi Arabia and Russia has flooded the market with newly tapped crude.
That has caused severe pain for U.S. producers, who have a higher cost to produce and who do not coordinate production levels like national oil producers. President Trump, seeking to help U.S. oil companies, has weighed into the situation by calling Saudi Arabia’s Crown Prince Mohammed bin Salman and later declaring on Twitter that he had confidence that Saudi Arabia and Russia would significantly slash production. While that announcement gave a bump to prices, such small gains could be quickly wiped out if an actual agreement is reached between producers.
The first challenge to such a deal is securing a meeting date and time in the first place.
OPEC and its allies originally planned to hold an emergency virtual meeting on Monday, but that was postponed to allow more time for negotiations among oil producers on crude supply cuts. It now looks like a virtual Friday meeting between G20 energy chiefs will be the next opportunity for official dialogue on energy policy.
Saudi Arabia and Russia are unlikely to agree to any cuts without the United States participating, too. Russia and Saudi Arabia want the U.S. to join in, but Trump has so far shown little willingness or ability to join and threatening tariffs on foreign oil.
“If the Americans don’t take part, the problem which existed before for the Russians and Saudis will remain — that they cut output while the U.S ramps it up, and that makes the whole thing impossible,” Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group that advises the Kremlin, told Bloomberg.
As Bloomberg notes, it’s not clear if Russia and Saudi Arabia “will require the U.S. to publicly commit to cut production — a challenge in the private, fragmented American industry — or if a compromise gesture would be enough.”
While diplomats and other officials scramble to reach a deal, Saudi Arabia, already a key player, will now have an enhanced role as host of the next likely meeting of officials under the G20 banner.