London — The world's largest economies late Friday endorsed the largest coordinated crude production cut in history to combat meltdown in the oil market caused by the coronavirus pandemic.
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However, despite nine hours of talks at an emergency summit and a few more hours of additional haggling over Mexico's quota, which remains unresolved, energy ministers of the G20 provided scant details about who had committed to concrete output cuts and a communique from the meeting did not mention any specific actions.
"We commit to take all the necessary and immediate measures to ensure energy market stability," the G20 minister said in their statement. "We recognize the commitment of some producers to stabilize energy markets."
The OPEC+ alliance, led by Saudi Arabia and Russia, tentatively agreed late Thursday to rein in a collective 10 million b/d, but the spat with Mexico threatens to undo the pact.
The alliance was seeking contributions from the US, Canada and other oil-producing G20 countries to supplement its deal. Russian energy minister Alexander Novak said after the meeting that the G20 members outside of OPEC+ would boost the total cut by 50% to 15 million b/d, but did not reveal how.
"We think that in addition to the 10 million b/d that OPEC+ will cut there will be another 5 million b/d cut by countries that are not included in OPEC+, so in total the cut in May and June will be 15 million b/d," Novak said in an interview broadcast on the Russia 24 TV channel.
Canada's minister of natural resources, Seamus O'Regan, told reporters in a briefing that "we did not discuss numbers," and did not mention what his country had offered to do.
Any participation by the US would be limited to its economically forced shut-ins and a vague commitment to use its Strategic Petroleum Reserve to lock away barrels that would otherwise exacerbate the oil glut.
"We will use the SPR to store as much oil as possible," US Energy Secretary Dan Brouillette said at the G20 summit. "This will take surplus oil off the market at a time when commercial storage is filling up and the market is oversupplied."
Under the OPEC+ part of the deal, the 23-country alliance of OPEC, Russia and nine other allies would slash 10 million b/d of output for May and June. The cuts would be rolled back to 8 million b/d for the rest of 2020, and then down to 6 million b/d for all of 2021 through April 2022.
Saudi Arabia and Russia would hold their production down to 8.5 million b/d, representing a decrease of some 3.5 million b/d for Saudi Arabia and 2 million b/d for Russia from current levels.
But Mexico is balking at its prescribed 400,000 b/d cut, counter-offering with 100,000 b/d.
A seeming compromise brokered by President Donald Trump, in which he said the US would "help" Mexico by taking on a portion of its cut, has apparently been rejected by Saudi Arabia and others, as the US is not planning any voluntary cuts but dressing up economically motivated shut-ins as its contribution.
Sources said Saudi Arabia, which has insisted on unanimous OPEC+ participation in the cuts, has threatened to walk out of the deal and reignite a pitched oil price war if Mexico does not toe the line.
Negotiations would continue Saturday, sources said. Saudi state oil giant Aramco is also scheduled to issue its official selling prices for May crude exports Saturday, according to market sources, and the outcome of the talks will determine whether the company aggressively slashes prices again, as it did last month to demonstrate its market power.
Monitoring the market
Whatever the final deal is, many analysts say it will fall far short of what is needed to stabilize prices in the short term as the coronavirus devastates oil demand.
Crude futures fell sharply late Thursday after the provisional OPEC+ deal was announced. Markets were closed Friday for the Good Friday holiday.
"Everything they're doing is still not sufficient to deal with a 20 million-25 million b/d drop in demand," said Jason Bordoff, director of Columbia University's Center on Global Energy Policy, on a Foreign Policy webinar.
However, Helima Croft, global head of commodities research for RBC Capital, said on the same webinar that the cuts were "a necessary first step" that would help slow inventory builds that would act as an anchor for any price recovery.
More aggressive buying by India and China to take advantage of lower prices and fill their strategic reserves could help, she added.
"Those are the two to watch in terms of demand recovery," she said.
Novak said OPEC+ ministers would continue to monitor the market and adjust the deal as necessary. At his urging, the Saudi-chaired G20 established a focus group that would coordinate measures to ensure energy stability.
"The situation on the oil market will undoubtedly change; if necessary OPEC+ will take additional measures or restore production," he said.