Russia rejects US suggestion on oil cuts

Russia has rejected suggestions that a market-driven fall in oil production from US shale producers could count towards the country’s share of a potential global crude reduction deal, dampening hopes of a significant agreement this week.

Russia, Saudi Arabia and other major oil producers including the US are set to hold meetings on Thursday and Friday in an attempt to hash out a deal to cut global oil production, after a dramatic fall in demand because of the coronavirus pandemic caused prices to drop by around 50 per cent.

But Moscow has said it would only agree to a deal if the US also accepts mandated curbs on its production, and on Wednesday dismissed an idea that a natural reduction of unprofitable shale production because of the lower oil price could account for the country’s share of cuts.

“These are completely different reductions. You compare the general reduction in demand with reductions for stabilising world markets. It’s like comparing length and breadth,” said Dmitry Peskov, spokesman for president Vladimir Putin.

The rejection is a sign that the Kremlin is demanding more cuts from US oil producers than President Donald Trump has suggested would be possible. 

Traders banking on a deal this week have helped drive Brent crude, the global benchmark, around 40 per cent higher since it hit an 18-year low last month. It is still more than 50 per cent lower than at the start of the year.

Opec members and allies such as Russia will meet on Thursday and a G20 meeting of energy ministers will take place on Friday. A key part of the G20 plan is for countries with private sector-run industries to offer already-announced cuts to capital expenditure as their contribution, according to people familiar with the matter.

The US has not committed to cutting production formally, given the diffuse nature of its privately run industry and antitrust law in the country. But there have been indications that Washington could offer the expected drop in its output caused by lower prices as its contribution to a deal.

President Trump has emphasised he believes the “free market” will lead to a deal, as Saudi Arabia and Russia will see only limited buyers for their oil as demand collapses.

The US Energy Information Administration, the statistical arm of the Department of Energy, on Tuesday forecast that US average production would fall by a combined 1.2m b/d over 2020-21 as wells become unfeasible.

Harold Hamm, a US shale executive with close ties to Mr Trump, told the Financial Times this week that “everybody” in the industry was cutting production as storage tanks fill up and refiners reduce the amount of crude they are purchasing. 

“These are different concepts, and they cannot be equated,” Mr Peskov said in response to a question about whether that market-driven decline in production would be accepted by Moscow as the US’s contribution to an agreement to curb global production.

People familiar with preparations for the G20 talks said they were still optimistic a supply deal could be reached, with them targeting the upper end of the 10m-15m barrel a day range put forward last week by Mr Trump. That would be the equivalent of almost 15 per cent of global supply, but Russia’s stance may prove a significant stumbling block to an agreement on Friday.

Energy ministers from the US, Japan, China, India, Brazil, UK, Canada, Mexico, Australia, Turkey, Saudi Arabia and Russia will participate in the virtual G20 meeting, while other members will send representatives below ministerial level. France has not yet committed to attending the meeting.

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