Russia and Saudi Arabia agreed on Thursday to cut global oil supplies by roughly 10%, handing President Donald Trump a tentative victory in his quest to save American energy producers from a price crash, according to reports from Reuters and the Washington Examiner.
Trump has lobbied the two countries to end a trade war that has threatened American companies and their workers with a surplus of oil, as a coronavirus-related drop in demand is bringing oil values to historic lows. The group of oil-producing nations known as OPEC+ still want America, the world’s largest oil producer, to join the cutbacks, but President Trump has not made any promises.
Russia, Saudi Arabia strike a deal
President Trump has pivoted from lobbying oil producers to lower prices to pushing for higher ones as a combination of high supply and low demand brought the price of oil down two-thirds this year, according to CNBC. Russia and Saudi Arabia flooded the market after an agreement on production cuts fell apart in March, resulting in a dangerous oversupply of oil right as demand is at an unnatural ebb thanks to the coronavirus pandemic.
In recent days, Trump had threatened to slap tariffs on imported oil to protect American companies and their workers, Reuters said, while Russia and Saudi Arabia planned to negotiate. Following pressure from Trump, OPEC+ finally agreed at a virtual meeting on Thursday to cut production by 10 million barrels per day starting in May, the Washington Examiner reported. The plan is to continue such cuts until July, then gradually ease back until the agreement expires in April of 2022, according to Reuters.
However, the agreement is not set in stone; OPEC+ wants other producers to join the cutbacks, including America and Mexico. In fact, OPEC nations expect other producers to contribute a 5 million barrel per day cut, Reuters noted.
“We are expecting other producers outside the OPEC+ club to join the measures, which might happen tomorrow during G20,” the leader of Russia’s sovereign wealth fund, Kirill Dmitriev, told Reuters Thursday.
No promises from Trump
Trump has, for his part, pressured Russia and Saudi Arabia to end the pricing war, but he has demurred from committing America to cuts, saying the free market is already causing cutbacks on its own. America has become the world’s top oil producer under Trump.
“Look, we already cut,” Trump said at a Wednesday night press briefing, according to the Washington Examiner. “You know, we’re, like, very market-oriented.”
At a White House presser the next day, Trump said he had spoken to Russia’s President Vladimir Putin and King Salman of Saudi Arabia, and that a deal was “very close.” As Dmitriev alluded to, America will participate in discussions at a G20 call, hosted by Saudi Arabia, between energy ministers on Friday.
Demand remains low
Beyond finalizing the deal, however, there is also the issue of demand. Oil firms are worried that diplomacy will not solve the crisis alone, since global demand is down about 30 million barrels a day, or 30% of global supplies, according to Reuters. With much of the world on lockdown, economic activity has slowed and global travel is at an eerie rest. As such, the American Petroleum Institute (API), the biggest oil lobby in the U.S., has said that the deal is just a first step.
“While this move will help stabilize world oil markets, significant challenges remain throughout the supply chain since current market disruptions are driven largely by this historic drop in demand as a result of the COVID-19 pandemic,” API CEO Mike Sommers said in a statement this week, according to the Examiner.
Trump has a reason to cheer here — at least for now. But this crisis may not be over until the pandemic passes and demand gets back to normal.