Washington — Energy security, OPEC production cuts, trade tensions and US oil sanctions are likely to come up in one-on-one talks between US President Donald Trump and world leaders at this weekend's G20 Summit in Osaka, Japan.
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The G20 energy meetings earlier this month happened days after two oil tankers were attacked near the Strait of Hormuz, escalating regional tensions and inspiring "grave concern" among Asian importers like host Japan that rely on the shipping route to meet much of their oil and gas demand.
Global markets are also hanging on an expected meeting between Trump and Chinese President Xi Jinping, which may determine if the two can reach a trade war ceasefire or if Trump follows through with a threat to impose 25% tariffs on an additional $300 billion worth of Chinese goods.
G20 members account for roughly 60% of global oil production and about 80% of oil consumption.
WHAT'S AT STAKE FOR ENERGY AND COMMODITIES
G20 host Japanese Prime Minister Shinzo Abe said Wednesday that he hopes the leaders reach a consensus on the importance of energy security amid rising tensions in the Middle East.
About 81% of Japan's January-April oil imports transited the Strait of Hormuz, according to calculations by Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp.
Nobuo Tanaka, chairman of the Sasakawa Peace Foundation, told S&P Global Platts that he expects to see Abe's leadership in formulating a G20 message on energy security, given his recent visit to Tehran to attempt to diffuse tensions between the US and Iran.
"Certainly issuing such a message that urges against a further escalation of tensions in the Middle East is justifiable from the perspective of energy security," said Tanaka, former executive director of the International Energy Agency.
But the discussion could become fraught after Trump singled out Japan and China this week when calling on other nations to protect shipping lanes, indicating a possible shift in a 40-year-old US maritime security policy.
"We don't even need to be there in that the US has just become (by far) the largest producer of energy anywhere in the world!" Trump tweeted Monday.
A senior administration official said maritime security in the Persian Gulf and Trump's desire to scale back the US role will be a "focus" of some meetings Trump has with world leaders.
About 20.7 million b/d of oil, or about 21% of global petroleum liquids demand, flows through the Strait of Hormuz, according to the US Energy Information Administration.
OPEC PRODUCTION CUTS
The summit will be the last chance for Saudi Arabia and Russia to negotiate before the OPEC/non-OPEC production cuts expire Saturday. The producers meet Monday and Tuesday in Vienna to decide whether to extend the 1.2 million b/d cuts through the end of the year.
Trump may press Saudi Crown Prince Mohammad Bin Salman on efforts to keep oil production stable amid increasing Middle East tensions.
"Iran must be at the top of the agenda for Trump and MBS," said Matt Reed, vice president of Foreign Reports. "Oil is a part of that equation, of course, but US officials have consistently given credit to the Saudis for helping keep oil markets well supplied despite sanctions. What more is there to say behind closed doors, especially now that Iran's exports have fallen off a cliff?"
A senior administration official told reporters this week that the meeting would discuss Iran's "recent provocative acts" in the Middle East and views on "regional stability."
US/CHINA TRADE DISPUTE
The outcome of the meeting between Xi and Trump will likely have the biggest near-term impact on oil prices, said Ellen Wald, an energy industry and policy consultant at Transversal Consulting.
"If they come out of the meeting looking positive, oil prices will rise," Wald said. "If it looks like the meeting was a backwards step, then oil prices will react negatively."
Ely Ratner, executive vice president at the Center for a New American Security, said Trump may have to choose between a "weak" deal with China that will steady markets but open him to criticism of capitulation -- or an escalation of tariffs, which could hinder US energy exports and other sectors.
China has backed off from buying US crude despite no actual tariffs being implemented to date.
For LNG, even the best outcome will not help reverse the loss of confidence among Chinese oil and gas companies, effectively displacing US supplies from China's energy mix for the foreseeable future.
The trade dispute initially affected spot US LNG cargoes, but has recently started to have a more severe impact on long-term investments in US liquefaction and export projects.
US oil sanctions against Iran and Venezuela are expected to be a topic of several bilateral meetings. Top Asian importers have had to seek alternative crude supplies as exports from both countries have fallen sharply.
With Russian President Vladimir Putin, Trump may discuss Russia's continued support of Venezuela, including ongoing oil trade, as US sanctions take root.
"There's no formal agenda for the meeting with President Putin, but Venezuela may very well be one of the subjects of discussion," a senior administration official said this week.
ClearView Energy Partners said the Trump-Putin meeting may determine the scope of US Congress' efforts to sanction Russia, such as targeting the Nord Stream 2 natural gas pipeline expansion or sanctions on the broader Russian energy sector.
"In our view, overly friendly Trump-Putin interactions -- especially a lengthy, off-camera meeting -- could catalyze legislative momentum," ClearView analysts said.
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