Moscow (Reuters) – Saudi Arabia and Russia are close to a deal on oil output cuts to reduce a global glut, a top Russian negotiator said on Monday, while sources in Moscow said it was ready for significant cuts, ahead of talks planned for this week.
A supply deal between OPEC, Russia and other producers, a group known as OPEC+, that had propped up oil prices for three years collapsed in March, just as the impact of lockdowns to limit the spread of the new coronavirus destroyed demand.
Riyadh and Moscow blamed each other for the failure and launched a battle for market share, sending oil prices to their lowest in two decades. That has strained the budgets of oil-producing nations and hit higher-cost producers in the United States.
U.S. President Donald Trump said last week he had brokered a deal with Moscow and Riyadh. But initial plans for an OPEC+ meeting on Monday were delayed. Two OPEC sources said a video conference would be held at 1400 GMT on Thursday.
“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” Kirill Dmitriev, one of Moscow’s top oil negotiators, who also heads Russian’s sovereign wealth fund, told CNBC.
Dmitriev was the first to make a public declaration last month about the need for an enlarged supply pact, potentially involving producers outside the OPEC+ group.
Two Russian sources said Moscow was ready for a significant oil output reduction provided other producers would do the same.
“It is necessary to reduce oil production in order to tackle the very serious decline in demand,” a source close to the Russian government told Reuters on condition of anonymity.
The Russian energy ministry did not respond immediately to a request for comment.
Kremlin spokesman Dmitry Peskov told reporters earlier on Monday that Moscow was ready to work with other leading oil exporting countries.
How Deep Would Be Enough?
Last week, Russian President Vladimir Putin said OPEC+ cuts could amount to around 10 million barrels per day (bpd), or some 10% of global output. Russian production reached 11.29 million bpd in March.
A Russian government and an industry source, speaking on condition of anonymity, said such 10% cuts might not be enough to steady the global oil market given the weakness of demand.
Russia and Saudi Arabia have long been frustrated that curbs by the Organization of the Petroleum Exporting Countries and others have left a gap that has been filled by shale oil firms in the United States, which became the world’s biggest producer.
Producers also disagree on the level from which they should make any reduction. Riyadh, with by far the world’s biggest reserve of extra capacity, has insisted it will no longer carry what it considers an unfair burden of cuts.
Putin has said the starting point should be production levels in the first quarter.
In its scramble to secure a bigger market share after the OPEC+ deal fell apart in March, Saudi Arabia raised its crude output to 12.3 million bpd on April 1 and said it planned to export more than 10 million bpd.
An OPEC source said the baseline was negotiable, adding every producer faced the same problem that the world’s oil storage capacity would soon be full.
“The cliff is visible to everyone,” the source added.
OPEC member Iraq said on Sunday any new deal needed support from major producers from outside OPEC+, such as Canada, Norway and the United States.
Antitrust laws prohibit oil producers in the United States from taking steps to push up oil prices. But curbing output would be legal if state regulators or the federal government set lower production levels, antitrust experts said.
The U.S. authorities have yet to indicate what, if any, action they might take. Trump said on Sunday he could impose “very substantial tariffs” on oil imports if prices stayed low, but he also said he did not expect this would be necessary.
In rare moves, Canada and Norway have signalled their willingness to curtail production.
After Thursday’s scheduled OPEC+ talks, G20 energy ministers and members of some other international organisations will hold a video conference, hosted by Saudi Arabia, on Friday, a senior Russian source told Reuters, as part of the efforts to get the United States involved in a new deal on production cuts.