© Reuters. FILE PHOTO: The sun sets behind an oil pump cylinder on a drilling platform in the Permian Basin in Loving County
By Rania El Gamal, Olesya Astakhova and Ahmad Ghaddar
DUBAI / MOSCOW / LONDON (Reuters) – OPEC and Russia meet on Thursday to try to agree to record declines in oil production, but their efforts to deal with the price drop caused during the coronavirus pandemic were complicated by mutual animosity and the reluctance of the United States to join the action.
Global demand for fuel has dropped by 30%, as blockages have immobilized aircraft, reduced vehicle use and dampened economic activity. Crude prices have fallen below the cost of production for many producers, including the thriving US shale oil industry.
US President Donald Trump said last week that an agreement he had negotiated with OPEC chief Saudi Arabia and Russia could cut 10-15 million barrels a day, or 10 to 15% of global supplies, an unprecedented reduction.
Riyadh and Moscow, who argued over the collapse of a previous supply-limiting pact in March, said their deal for deep cuts would depend on the United States and others outside a known group under the name of OPEC +.
Trump is the world’s largest producer, but his administration has shown no appetite to force domestic supply cuts. The US Department of Energy echoed these views this week, saying that production in the country is already shrinking without government intervention.
Saudi Arabia and Moscow have yet to publicly announce an agreement on the cuts or how the cuts would be split among the Organization of the Petroleum Exporting Countries, Russia and other producers.
When asked if a natural decline in oil production in the United States due to low prices could count as a reduction, Kremlin spokesman Dmitri Peskov said on Wednesday: “These are absolutely different reductions ”.
“You compare the overall decline in demand to reductions aimed at stabilizing world markets. These are different concepts and they could not be matched, “said Peskov.
The OPEC + meeting on Thursday via video conference will be followed by a meeting of the 20 Nations Group of Energy (G20) energy ministers on Friday.
To understand how a reduction would be shared among producers, Moscow, Riyadh and others should agree on production levels to be used as a benchmark for calculating the reductions.
The problem was muddled by a price war between Saudi Arabia and Russia that erupted after an acrimonious OPEC + meeting in Vienna in March.
At the meeting, Russia refused to participate in the cuts proposed by Saudi Arabia in response to the coronavirus crisis. In response, Riyadh said it would pump to its full capacity and flooded an already overcrowded market with additional crude.
Saudi Arabia increased production to a record 12.3. million barrels per day in April, compared to 10 million barrels per day in March. The kingdom’s allies in the Gulf, Kuwait and the United Arab Emirates, also increased their production.
OPEC sources said that Riyadh wanted cuts calculated from its record levels in April. But Russia has said the cuts should be based on production in the first quarter before the price war begins.
“The question is still the benchmark,” said an OPEC source.
The Russian news agency TASS said any cuts could last three months from May.
Oil prices (), which fell to their lowest level in nearly two decades in March, are trading at less than $ 34 a barrel, about half their level at the end of 2019 before the coronavirus pandemic incites governments tell people to stay home and the demand for fuel is collapsing.
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