Production cuts will be the main focus of two important video meetings this week as OPEC+ will meet Thursday and G20 Energy Ministers meet Friday.
With headlines about a deepening Saudi-Russia rift and moving the OPEC meeting from Monday to Thursday, oil markets may open lower tonight. However, the meeting was moved to accommodate more participants and it should serve as a positive sign for oil markets.
We forecasted several outcomes in our Saturday note that have since been confirmed.
- Aramco postponed its official selling price (OSP) notice that was supposed to be released today. We see it as a good-will sign that Saudi Arabia wants a deal and the oil talks with Russia and other producing countries are real. Otherwise, the OSP would likely have offered a lower price and meant a doubling down of the oil price war sending oil prices into the teens this week.
- OPEC has moved its meeting to Thursday, and as we forecasted, there will be a G20 energy ministers meeting on Friday that the US and other non-OPEC+ producers will attend. Saudi Arabia chairs the G20 this year. The G20 meeting idea was suggested by IEA Executive Director Fatih Birol who we believe will participate as well. Birol is tweeting about conversations he is having with other energy ministers likely to attend the G20.
- There was a conference call with Gulf producers Saudi Arabia, UAE and Kuwait on Sunday followed by statements tweeted by UAE and Kuwait supporting the meeting and oil talks later this week.
Still too much is being made about the Saudi-Russia rift over the blame for the failed OPEC meeting on March 6. There is definitely bad blood on the Saudi side but it won’t derail efforts on a global producer pact this week. In addition, Russia has made several statements this weekend encouraging the meetings on oil production.
The big remaining issue is the form of US contribution to the effort. We think it is very unlikely the US government will mandate production cuts that is the preferred action by OPEC and Russia. Instead, we think the more probable course will be some informal US participation in the form of estimated or announced cuts by companies as a result of low prices, low demand and no storage.
While it’s still unclear if OPEC and company will accept this informal US participation, we do sense some flexibility to it. We think Saudi Arabia and Russia are facing the same market conditions of US producers and need to cut as well. President Trump’s intervention and the informal US participation in the G20 oil talks gives a face-saving reason to change course. The objective remains to cut at least 10 million barrels per day that was also the amount tweeted by Trump.
