The world’s largest oil producers moved closer to an unprecedented deal to ratchet back production and rescue crude markets from a pandemic-driven collapse, after Russia signaled it’s ready to make cuts. Moscow, whose grudge against U.S. shale is arguably the biggest obstacle for a deal, said Wednesday it’s willing to reduce output by 1.6 million barrels a day, or roughly 15%. Oil prices surged in New York.
At stake is the fate of entire oil-dependent economies, thousands of companies and millions of oil industry jobs as the OPEC+ coalition and Group of 20 oil ministers gather in two key video conferences this week. Crude futures have plunged to the lowest levels in almost two decades as the lockdowns around the world slash oil demand by as much as 70% in some places and Russia and Saudi Arabia battle for their share of a shrinking market.
The battle is not won yet, though, as the Kremlin insists the U.S. should do more than just let market forces reduce its record production. President Donald Trump, meanwhile, has put huge diplomatic pressure on Russia and Saudi Arabia, while saying America’s cut will happen “automatically” as low prices put America’s shale patch in dire straits.
“I think they’ll straighten it out — a lot of progress has been made over the past week,” Trump said at a White House briefing Wednesday. “We have a tremendously powerful energy industry in this country now, number one in the world, and I don’t want those jobs being lost.”
The pressure on Saudi Arabia to prop up oil prices has been immense, with U.S. government officials and lawmakers all abandoning their traditional stance that cheap gasoline is good for America. Republican lawmakers in particular have sent pointed letters to Riyadh, demanding quick action. On Wednesday evening, a group of 48 Congressmen wrote to Crown Prince Mohammed Bin Salman saying the kingdom was “artificially” depressing global oil prices, hurting American interests.
Saudi Arabia is one of the few countries in the world that can boast crude production that’s profitable in the current environment. But the kingdom’s economy is at risk, too, as Riyadh needs much higher prices to fund its budget. So does Russia.