Virtual OPEC meeting set after Trump talks with Saudi crown prince, Russian president

Whether US oil producers can agree to output cuts remains to be seen.
Sunday 05/04/2020
OPEC sign outside the headquarters of the Organisation of the Petroleum Exporting Countries (OPEC), Austria. (Reuters)
Balancing the market. OPEC sign outside the headquarters of the Organisation of the Petroleum Exporting Countries (OPEC), Austria. (Reuters)

The kingdom of Saudi Arabia has called for an emergency virtual meeting of the OPEC+ 1 cartel in an effort to discuss ways of how to restore “balance” to global energy markets.

The announcement by the kingdom, which led to a spike in oil prices, comes as part of the kingdom’s endeavours to support the global economy and “in appreciation of the request of the president of the USA,” the official Saudi Press Agency said.

In a Tweet on April 2, US President Donald Trump said he had spoken with Saudi Crown Prince Mohammed bin Salman bin Abdulaziz after having previously spoken with Russian President Vladimir Putin about stabilising the international energy market.

“Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” Trump said on his official Twitter account, while later tweeting that production cuts could go as high as 15 million barrels.

The Tweet by the US president was a source of confusion in Russia, with the Kremlin denying that Putin and Trump have spoken regarding the ongoing oil price war.

“No, there was no conversation,” Russian presidential spokesman Dmitry Peskov told the Interfax news agency on April 2, while also adding that there were currently no plans for such a discussion.

The Kremlin is yet to confirm that it will be attending the OPEC + 1 virtual meeting, which is scheduled for Monday, March 6.

Beyond that, there is major speculation among energy analysts on whether a deal can be reached by the energy cartel.

“We do not believe an end to the oil price war is imminent; the road to agreement may be a long one … Even if a deal could be done today, our forecasts imply that storage will still fill to maximum in May,” said Paul Horsnell and Emily Ashford, analysts for Standard Chartered.

“The question for the oil market right now is whether we will have 10 million bpd of voluntary production cuts in the second quarter or forced production cuts,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy,

“That could be due to full supply chains of oil, where shut-ins are forced, as there will be nowhere to physically put the oil after it leaves the ground,” he added.

Meanwhile, the Wall Street Journal has reported that Riyadh and Moscow will not agree to cuts “unless they get signals from US producers they will reduce output.”

Whether US oil producers will agree to output cuts remains to be seen. However, the current oil price war along with the global spread of the coronavirus has taken a significant toll on the US oil industry, claiming casualties along the way.

US shale producer Whiting Petroleum Corporation, considered one of the top shale oil producers, filed for bankruptcy.  In a statement on April 1, the company blamed “the severe downturn in oil and gas prices” on the uncertainty around the duration of the Saudi- Russia oil price war and the COVID-19 pandemic.

The success of the virtual OPEC summit will also be predicated on Trump’s meeting with US oil producers and whether he can convince them to also scale back production, likely through incentives such as imposing import tariffs on foreign crude oil.

The current state of affairs resulted after the collapse of the OPEC + Russia alliance on March 6, following a meeting in Vienna, which was meant to address production cuts related to the impact of the coronavirus pandemic on the global energy market.

The Russian energy minister, Alexander Novak, told the OPEC cartel that Russia would not be making any further cuts, a decision made based on the Kremlin’s talks with Russian oil companies, while energy analysts believed the Russian move was also intended to punish the US shale oil industry.

From there, Riyadh ordered Saudi Aramco to ramp up production by 13 million barrels per day and that was followed by a gesture of solidarity from the United Arab Emirates, which announced that it would be joining the kingdom in increasing production.