Oil prices rallied on Monday before dipping again as analysts continued to speculate on whether the OPEC+ group of oil-producing nations can reach agreement this week on cutting output. Oil prices had risen sharply last week after President Donald Trump said that he expected Saudi Arabia and Russia to cut production by between 10 and 15 million barrels per day.
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!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
According to Reuters, however, Brent crude had fallen again by 12 cents to $32.93 a barrel by 1:13 p.m. EDT on Tuesday, while West Texas Intermediate (WTI) lost 35 cents to trade at $25.73 a barrel.
The OPEC+ group (which includes Russia) plans to hold a video conference on Thursday to discuss cutting output to stem falling crude prices. The meeting was to have been held on Monday but had to be postponed after Russia and Saudi Arabia traded accusations over who was to blame for the breakdown in talks between the oil giants in early March. Russian news agency Tass signaled Tuesday that three-month production cuts—from May to the end of July—may be possible, quoting an unnamed “high-ranking source” within the OPEC organization.
However, it remains to be seen whether OPEC+ will agree to production cuts, as American oil producers restated their opposition this week to production quotas for U.S. oil. The OPEC+ cartel, which includes Russia, had been keeping production low in recent years even as U.S. producers had exploited fracking technologies and the Trump administration’s energy independence policies to make the United States the world’s leading oil producer and a net exporter of oil and gas products.
The Blame Game
According to a Bloomberg report, Russian President Vladimir Putin implied that last week that the last breakdown in talks had been due to Saudi Arabia’s wish to harm the U.S. shale oil industry. Speaking on recent low oil prices and the flood of crude oil coming into the market, Putin said: “This was apparently linked to efforts by our partners from Saudi Arabia to eliminate competitors who produce so-called shale oil. To do that, the price needs to be below $40 a barrel. And they succeeded in that. But we don’t need that, we never set such a goal.”
Saudi Arabia’s Minister of Foreign Affairs Prince Faisal bin Farhan Al Saud was quick to contradict what he called “the distortion of facts,” claiming that Putin’s statement to the media had been “fully devoid of truth” and that “Russia was the one that refused the agreement.”
According to the minister, “The Kingdom is also seeking to reach more production cuts and achieve balance in the oil market, which is in the interest of shale oil producers, contrary to what was issued by Russia and its desire to keep prices low to affect shale oil.”
New on the API Blog: API President and CEO Mike Sommers talks more about the global #oil demand downturn and why US companies shouldn't be asked to make additional production cuts: https://t.co/3nfQgiwxDI pic.twitter.com/ICF6GHavZI
— American Petroleum Institute (@APIenergy) April 6, 2020
United States Policy Significant
According to a Reuters report, energy ministers in several OPEC member states will be reluctant to cut production unless the United States participates with output cuts of its own. However, the U.S. Department of Energy pointed out on Tuesday that American oil production is already falling without government intervention in the market.
After a meeting between Trump, administration officials, and American oil and natural gas company executives on April 3, American Petroleum Institute (API) President and CEO Mike Sommers thanked Trump for his support of the industry and the thousands of jobs associated with it. However, he also cautioned against taking steps that could damage an industry already struggling due to the effects of the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus, on the U.S. economy.
“We are encouraged by the president’s strong diplomacy with Saudi Arabia and Russia, and we are optimistic further progress will be made in the days ahead,” said Sommers. “No one wins in a price war, and the Saudis and the Russians aren’t benefiting from their decisions. We also urged the administration to avoid U.S. policies that could do more harm than good for American producers.”
The API cautioned against U.S. government intervention in the oil market in the form of tariffs or production quotas. According to the organization, “Production cuts and tariffs will only do more harm to American producers and create long-term negative consequences for American consumers.”
On the API Blog: Developing situation with #OPEC+ underscores the need for strong U.S. #oil diplomacy in the current demand downturn: https://t.co/9Sgz5xUrvR pic.twitter.com/9M33iAERue
— American Petroleum Institute (@APIenergy) April 6, 2020
According to Reuters, however, Trump said on Sunday that he is ready to place “very substantial tariffs” on imported oil if prices remain low. However, he also said he does not expect to have to do so, as neither Russia nor Saudi Arabia benefit from the current price war.
Reuters contributed to this report.
