Russians, Saudis Agree to Cut Crude Production

Officials from Saudi Arabia and Russia came to a tentative agreement yesterday to make major crude oil production cuts. The accord came after a month-long price war between the two major oil producers crashed crude prices and sent the U.S. energy sector reeling.

Russia and Saudi Arabia headline a deal between 23 nations to make massive cuts to oil production. The group negotiated for 11 hours to come to terms for an agreement, but the deal could be dead on arrival.

Mexico abruptly walked away from the talks at the last minute, leaving the agreement in limbo. Officials say talks will continue at the Group of 20 Leading Countries energy ministers meeting scheduled for Friday.

The group of oil-producing countries met via teleconference to hash out a solution to the global crude oil glut that has torpedoed oil prices over the past month. The negotiations included representatives from 13 OPEC countries, plus 10 countries in a Russian-led coalition, and a few other oil producers.

OPEC released a statement yesterday that said most of the delegates agreed to cut production by 10 million barrels per day, collectively, in May and June. Then, cuts of 6 million barrels per day would continue through April 2022. However, OPEC emphasized that the agreement hinges on the consent of Mexico, who refused to participate in the cuts after hours of intense negotiations.

The Mexican delegation says larger oil producers, like Russia and Saudi Arabia, should take on bigger shares of the cuts. In a big to come to a compromise, Mexican Energy Minister Rocio Nahle said his country has offered to cut production by 100,000 per day for the next two months.

Saudi Arabia and Russia have agreed to “historic” cuts in #oil production in a bid to rebalance crude markets that are in crisis because of the dramatic decline in global energy demand#OPEC+https://t.co/I3SBylKyN0 pic.twitter.com/vakrPwNAky

— Arab News (@arabnews) April 9, 2020

However, OPEC heavyweight Saudi Arabia says no dice. He told the assembly that the deal is off if Mexico doesn’t get on board. The group hopes to continue negotiations at the G-20 conference schedule for the next day. According to the Wall Street Journal, one participant in the meeting said the message from the Saudi prince was “loud and clear”. The source emphasized that there will be “no deal without Mexico.”

While the coalition of oil-producing countries tries to get global supply under control, the crude market has major problems on the demand side too. The coronavirus pandemic choked off a huge portion of the demand for crude oil. According to one expert, global oil consumption could plummet by 35 million barrels a day in April.

Between the oversupply issues and weakened demand, oil prices fell 55% in March. Oil prices this low spell certain doom for the U.S. oil and gas sector, which has higher production costs than other major oil producers.

The issue has attracted the attention of President Trump. The president said he spoke with Russian President Vladimir Putin and Saudi Arabian King Salman on Thursday for a “big talk” about oil production. Mr. Trump said he hopes to avoid major layoffs in the U.S. oil industry. “We had a very good talk,” the president told an assembly of reporters at White House press conference on Thursday, “We’ll see what happens.” He didn’t specify whether he would ask U.S. American oil companies to make production cuts.

The stage is set for Friday’s G-20 meeting to be a major event for the oil market. Leading producers including the U.S., Canada, and Brazil are expected to attend the meeting.  U.S. oil producers are hoping that a deal will prop up crude prices and bring some stability to the energy markets.

All eyes are on Mexico to see if they will accept their end of the bargain but, with enough pressure from the U.S. and Canada, there’s a decent chance that the world’s oil producers can come to some kind of agreement in order to support the market.