Argentina's President Mauricio Macri (R) welcoming the President of the European Commission Jean-Claude Juncker (C) and President of the European Council Donald Tusk, on arrival in Buenos Aires on November 29, 2018. Image Credit: AFP

Abu Dhabi: Issues related to oil markets as well as the trade dispute between China and the US is expected to dominate discussions at the G20 summit that begins in Buenos Aires on Friday.

The two-day summit takes place as global oil prices trend lower at around $60 (Dh220) per barrel due to oversupply concerns and trade tensions between US and China escalate over unfair trade practices.

The world’s top leaders including US president Donald Trump, Chinese President Xi Jinping, Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammad Bin Salman, among others, are attending the event at Argentinian capital.

“G20 today is not dealing with another financial crisis which threatens a global recession,” said Ehsan Khoman, head of MENA Research and Strategy at MUFG Bank.

Saudi authorities will see through US pressure and concentrate efforts on their ‘Saudi First’ policy and thus prioritising its domestic needs for oil prices to hover closer to its fiscal breakeven price of $75 per barrel.

- Ehsan Khoman | Head of MENA Research and Strategy at MUFG Bank

“Instead, it is fronting fundamental economic challenges that may imperil globalisation and broader international trade cooperation, as well as significantly heightened geopolitical tensions across a broad spectrum of multifaceted levels.

“Front and centre of the summit will be the bilateral discussions between presidents Trump and Xi, with markets broadly pricing in a preliminary understanding on trade that leads to further deliberations on the finer details in the weeks ahead,” Khoman added.

On oil, he said the potential messages conveyed at the summit by the Big 3 — namely, the US, Russia and Saudi Arabia — on their coordinated oil market management strategy, may prove pivotal in providing markets guidance on the future trajectory of the front end of the oil curve.

President Trump has been pressuring Saudi Arabia and other Opec (Organisation of the Petroleum Exporting Countries) member countries to increase production to lower oil prices. He even tweeted that oil prices should be much lower than what they are today.

“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower,” he tweeted recently.

‘Symbolic cut’

Saudi Arabia on the other hand is inclined towards cutting oil production to increase oil prices. The country’s oil minister Khalid Al Falih even indicated about the need to cut production by about 1 million barrels per day (bpd) to rebalance oil markets.

“Saudi authorities will see through US pressure and concentrate efforts on their ‘Saudi First’ policy and thus prioritising its domestic needs for oil prices to hover closer to its fiscal breakeven price of $75 per barrel, above entertaining calls from President Trump to further raise production levels,” said Khoman.

The Russians, too, are content with lower oil prices, he added.

“Given that the Russian rouble is pegged to the price of oil, Russian oil producers have been vocal that they are content with Brent being in the $60 to $65 per barrel price range.”

But analysts are not sure whether Russia and Saudi Arabia would agree on production cuts at the G20 summit or the next month’s Opec meeting in Vienna.

Garbis Iradian, chief economist for Mena at the Washington-based Institute of International Finance, expects a deal between Russia and Saudi Arabia at the summit, to cut production by about 1 million bpd.

“Saudi Arabia would cut its oil production by about 0.5 million bpd from its peak level of 10.9 million bpd reached in November, Russia would reduce its oil production by 0.2 million bpd. The UAE, Kuwait, and Iraq could cut their combined production by 0.3 million bpd,” said Iradian.

Francisco Quintana, head of strategy at Foresight Adviser, doubts whether a substantial production cut is going to come out of G20 or Opec meetings.

“We are expecting a symbolic cut at the Opec meeting — the market is expecting it, and if Opec skips it, we might see another 20 per cent decline in oil prices.”