VAL TO EXPLODE Saudi Arabia, Russia Agree to Lead Unprecedented Oil Output Deal
U.S., Saudi Arabia, Russia Agree to Lead Unprecedented Oil Output Deal
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Saudi Arabia, Russia and the U.S. have agreed to lead a multinational coalition in major oil-production cuts after a drop in demand due to the coronavirus crisis and a month-long Saudi-Russian feud had devastated oil prices. The deal, sealed Sunday, came after President Trump intervened to help resolve a Saudi-Mexico standoff that jeopardized the broader pact.
As part of the deal, 23 countries committed to collectively withhold 9.7 million barrels a day of oil from global markets. The unprecedented agreement is designed to address a mounting oil glut resulting from the pandemic’s erosion of oil demand.
On a hastily convened conference call on Sunday with delegates from the 13-nation Organization of the Petroleum Exporting Countries and other nations including Russia, participants raced to strike a deal before oil markets opened on Monday. They expected prices to crash on Monday if no accord had been clinched.
Mr. Trump and his representatives weren’t present at the meeting. Still, the American president’s presence loomed large as Mr. Trump had intervened with Saudi Arabia and Mexico and helped to settle the dispute.
Under the final deal announced Sunday, Mexico will cut 100,000 barrels a day of output, some 250,000 barrels fewer than Saudi Arabia initially wanted. The U.S. unlocked the standoff by pledging to compensate the Mexican amount with 300,000 barrels of reductions of its own, the delegates were told.
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It remains unclear how the U.S. cuts would be carried out. Participants were also told the U.S., Canada and Brazil will hold back as much as 3.7 million barrels a day but some of the reductions will be market-driven losses.
On Thursday, Saudi Arabia had convinced Russia, a key rival in the oil market, to end a price war and join the collective cuts but the completion of the deal fell through when the kingdom refused to soften curbs for Mexico.
Oil prices have lost 40% since early March, when Saudi Arabia and Russia failed to agree on an emergency plan to address an oil market supply glut that continued to build as many of the world’s biggest economies went into lockdown to slow the spread of the coronavirus. After the disagreement, Saudi Arabia embarked on an aggressive price war in an attempt to grab market share from Russia.
Saudi Arabia had come under pressure from the U.S. to compromise with Mexico. Mr. Trump has intervened in recent days on behalf of U.S. producers, calling the Saudi leadership and Mexican President Andrés Manuel López Obrador. He has offered to make up for some of the production cuts Mexico is refusing. Before speaking to the Mexican president, Mr. Trump said he had talked to Russian President Vladimir Putin and Saudi King Salman on Thursday about oil production, adding that he wanted to avoid layoffs in the oil industry both in the U.S. and abroad.
For decades, Mr. Trump has been a vociferous opponent of the cartel, deeming its efforts an evil force that squeezed American motorists. But the price war between Saudi Arabia and Russia threatened a vibrant U.S. oil industry and led to what seemed to be a change of heart.
But in addition to prodding both sides into an agreement, the U.S. has also warned it would retaliate if Saudi Arabia didn’t turn off the spigots. On April 4, U.S. Mr. Trump threatened to impose tariffs on crude imports if he has to “protect” U.S. energy workers from an oil flood from producers such as Saudi Arabia.
On Saturday, some Republican senators also spoke with the Saudi energy minister for nearly two hours, warning him a longstanding U.S. alliance with the kingdom would be damaged if he didn’t cut output. “The Saudis spent over a month waging war on American oil producers, all while our troops protected theirs. That’s not how friends treat friends,” Sen. Kevin Cramer, a North Dakota Republican, said. “Saudi Arabia’s next steps will determine whether our strategic partnership is salvageable.”
The deadlock between Mexico and Saudi Arabia nearly scuttled the broader deal and proved to be a test for Prince Abdulaziz’s uncompromising leadership style, delegates said, as he struggled to corral 13 OPEC nations and a ballooning coalition of roughly a dozen other countries to respond to the threat the global pandemic poses to oil markets.
At the OPEC-led meeting on Thursday, Prince Abdulaziz appeared to have reached a collective deal when he rebuked a demand by Rocío Nahle, the energy minister Mexico, to soften production curbs. She wanted 100,000 barrels a day, but the prince wanted three times that much. “He was inflexible,” said a delegate. The prince wanted OPEC to act as a unified group. He has said he believes any exemptions to oil production cuts would bring about a total collapse of the oil market.
Late into the proceedings, Ms. Nahle abruptly signaled she was leaving the virtual meeting to consult Mexican President Andrés Manuel López Obrador.
“You are disrespectful,” the Saudi energy minister told her, according to people who were on the call. Following Mexico’s exit, the meeting ended without a final deal.
After the delegate’s exit, Prince Abdulaziz had refused any compromise with Mexico, despite calls from Mr. Trump, trying to help the two delegations reach an understanding.
Prince Abdulaziz, the son of the Saudi king and half-brother to designated heir to the Saudi throne, Prince Mohammed, was the first royal ever to receive Saudi Arabia’s energy portfolio last fall.
His role as oil negotiator was challenging from the start. He blocked Angola from a technical meeting and then argued with the African producer over small cuts, which almost derailed his first major summit as OPEC’s de facto chief in December.
At a conference last month, the prince scolded Russian energy minister Alexander Novak, saying Russia would regret refusing to cut production. The split abruptly ended a more than three-year collaboration between the two oil giants and sparked a price war.
Another meeting Friday, led by Prince Abdulaziz and the energy ministers of the Group of 20 wealthiest nations ended with little progress. In that meeting, the Saudi royal battled with European representatives, including those from U.K., France and Germany, according to people familiar with the matter.
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