Oil markets want a deal, but do the major oil producers want one as well? Monday will decide the fate of a US brokered push for a production cut. File picture of an oilfield operated by Bashneft in Otrada, Russia. Image Credit: Bloomberg

Vienna: The OPEC+ coalition is rushing to pull together a meeting of its members - and possibly other oil producing nations - after President Donald Trump called for a coordinated production cut to stem the historic rout in crude prices.

A virtual meeting will be held on Monday. It will be open to all producers - not just those among the Organization of Petroleum Exporting Countries and its allies - but it’s not yet clear which will attend. The US so far has given no indication it’s prepared to join.

The guest list is crucial as Saudi Arabia has made clear it will only cut production if others, including the US, shoulder some of the burden. Saudi Arabia called for the meeting, saying it should aim for a “fair agreement”.

Trump shocked markets on Thursday by tweeting that he expected Russia and Saudi Arabia to cut output by about 10 million barrels - or roughly a 10th of global petroleum output. But according to a person familiar with the situation, the president also wants other producers to contribute.

There are enormous obstacles to any deal: Russia was quick to deny on Thursday that any agreement had been reached. Even if an accord can be struck, a cut of 10 million barrels would barely dent the glut of oil that has been created by the economic fallout of the coronavirus pandemic. Traders estimate the lost demand could be as high as 35 million barrels.

But oil did jump

Brent crude, which jumped more than 40 per cent on Thursday after Trump’s announcement before paring those gains and surged as much as 7.2 per cent on Friday. It’s still down 52 per cent this year as the virus fight grounds planes and shutters huge swathes of the global economy.

In some corners of the market, physical prices have gone negative and some producers are expected to start suspending output as there’s not enough space to store the excess crude. Tankers filled up fast as ships were being used as storage rather than transport.

Producers around the world are feeling the pain of the price war, which started a month ago after Russia refused to take part in a round of cuts. Saudi Arabia aggressively discounted its crude days later, in a move to seize customers from Russia’s traditional markets.

Shale producers in the US are struggling and national finances are under pressure. Russia, for example, is now expecting oil prices at $20 a barrel this year and will ramp up borrowing to make up for a budget shortfall.

Washington’s options

The White House has considered tariffs on foreign oil imports to protect US producers, though the idea is opposed by some top Trump advisers led by Larry Kudlow, the director of the National Economic Council.

The idea of a US production cut, probably executed by capping exports, is also on the table at the White House, though many oil industry representatives have warned that the approach would cause the US to cede the very “energy dominance” Trump has repeatedly celebrated.

Trump said on Thursday he expected a deal - but made no mention of any role for the US.

“It would be great for Russia, it would be great for Saudi Arabia - I hope they make that deal but that’s what they told me,” he said. “Can something happen where it doesn’t happen? I guess? In which case there’s another alternative, but I’d rather not see the other alternative.”

Can something happen where it doesn’t happen? I guess?

- President Donald Trump about the chances of a Saudi-Russia oil deal.