Saudi Arabia, Russia, and the U.S. agreed to lead a multinational coalition in major oil-production cuts after a drop in demand due to the coronavirus crisis and a month-long Saudi-Russian feud had devastated oil prices. The deal, sealed Sunday, came after President Trump intervened to help resolve a Saudi-Mexico standoff that jeopardized the broader pact.
As part of the agreement, 23 countries committed to collectively withhold 9.7 million barrels a day of oil from global markets. The deal, designed to address a mounting oil glut resulting from the pandemic’s erosion of oil demand, seeks to withhold a record amount of crude from markets—over 13% of world production. The U.S. has never been so active in forging a pact like this.
On a hastily convened conference call on Sunday with delegates from the 13-nation Organization of the Petroleum Exporting Countries and other nations including Russia, participants raced to strike a deal before oil markets opened on Monday. They expected prices to crash on Monday without an accord.
It was a diplomatic victory for Mr. Trump. His allies in the oil industry—faced with a major crisis as prices plummeted—prodded Mr. Trump to press international rivals to cut supply before it caused a wave of U.S. bankruptcies.
Mr. Trump, on Twitter, said the deal will “save hundreds of thousands of energy jobs in the United States” and he thanked the Russian and Saudi Arabian leaders for their cooperation.
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Mr. Trump and his representatives weren’t present at Sunday’s meeting. Still, the American president’s presence loomed large after he intervened with Saudi Arabia and Mexico and helped to settle the dispute. Mr. Trump also placed last month urging the Saudi and Russian leaders to call a cease-fire in their price war against each other.
Christi Craddick, a regulator with the Texas Railroad Commission—which regulates oil in the U.S.’ largest oil-producing state—said Mr. Trump’s “aggressive actions and continued engagement to bring Saudi Arabia and Russia to the table to reduce global oil production was crucial to defending the domestic energy industry” and avoiding a downward spiral in oil prices.
Investors remain concerned that the cuts might not be enough to support higher prices in the coming weeks as worldwide lockdowns pummel demand for gasoline, diesel and jet fuel. The curbs will mitigate some issues in oil markets, but some analysts said they were too little, too late. Amid travel restrictions and work stoppages, oil consumption is expected to fall by as much as 30 million barrels a day this month.
Under the final deal disclosed Sunday, Mexico will cut 100,000 barrels a day of output, some 250,000 barrels fewer than Saudi Arabia initially wanted. The U.S. unlocked the standoff by pledging to compensate the Mexican amount with 300,000 barrels of reductions of its own, the delegates were told. It remained unclear whether that was in addition to other U.S. cuts or how the U.S. cuts would be implemented. Participants were also told the U.S., Canada, and Brazil will hold back as much as 3.7 million barrels a day.
In the end, the U.S. appears to be yielding little, with Saudi Arabia, Russia and their other oil allies expected to bear the brunt of the work rebalancing a historic glut in the market. Some of the cuts are expected to coincide with a natural decline in production due to falling prices.
Participants in Sunday’s deal were also told the U.S., Canada, Brazil and G20 countries that aren’t part of the OPEC alliance will hold back as much as 3.7 million barrels a day.
In addition, Saudi Arabia, the United Arab Emirates and Kuwait have agreed to cut a combined 2 million barrels a day above their quota, Iranian Oil Minister Bijan Zanganeh said in a televised interview.
Oil prices have lost 40% since early March, when Saudi Arabia and Russia failed to agree on an emergency plan to address an oil market supply glut that continued to build as many of the world’s biggest economies went into lockdown to slow the spread of the coronavirus. After the disagreement, Saudi Arabia embarked on an aggressive price war in an attempt to grab market share from Russia.
The international deal had stalled three times in recent days, with scheduled votes canceled and ministers repeatedly dismissed and called back, a senior White House official said.
Tensions grew inside the White House Sunday afternoon after a fourth vote didn’t start at the scheduled time. Several officials believed it was the last chance for a deal. Mr. Trump grew concerned and made another round of calls to keep leaders at the negotiating table, the White House official said.
On Thursday, Saudi Arabia had convinced Russia, a key rival in the oil market, to end a price war and join the collective cuts. But the completion of the deal fell through when the kingdom refused to soften curbs for Mexico.
Saudi Arabia had come under pressure from the U.S. to compromise with Mexico. Mr. Trump has intervened in recent days on behalf of U.S. producers, calling the Saudi leadership and Mexican President Andrés Manuel López Obrador. He offered to make up for some of the production cuts Mexico is refusing. Before speaking to the Mexican president, Mr. Trump said he had talked to Russian President Vladimir Putin and Saudi King Salman on Thursday about oil production, adding that he wanted to avoid layoffs in the oil industry both in the U.S. and abroad.
For decades, Mr. Trump has been a vociferous opponent of the cartel, deeming its efforts an evil force that squeezed American motorists. But the price war between Saudi Arabia and Russia threatened a vibrant U.S. oil industry and led to what seemed to be a change of heart.
In addition to prodding both sides into an agreement, the U.S. has also warned it would retaliate if Saudi Arabia didn’t turn off the spigots. On April 4, Mr. Trump threatened to impose tariffs on crude imports if he has to protect U.S. energy workers from an oil flood from producers such as Saudi Arabia.
On Saturday, some Republican senators also spoke with the Saudi energy minister for nearly two hours, warning him a longstanding U.S. alliance with the kingdom would be damaged if he didn’t cut output. “The Saudis spent over a month waging war on American oil producers, all while our troops protected theirs. That’s not how friends treat friends,” Sen. Kevin Cramer, a North Dakota Republican, said. “Saudi Arabia’s next steps will determine whether our strategic partnership is salvageable.”
The deadlock between Mexico and Saudi Arabia nearly scuttled the broader deal and proved to be a test for Prince Abdulaziz Bin Salman’s uncompromising leadership style, delegates said, as he struggled to corral 13 OPEC nations and a ballooning coalition of roughly a dozen other countries to respond to the threat the global pandemic poses to oil markets.
At the OPEC-led meeting on Thursday, Prince Abdulaziz appeared to have reached a collective deal when he rebuked a demand by Rocío Nahle, the energy minister Mexico, to soften production curbs. She wanted 100,000 barrels a day, but the prince wanted three times that much. “He was inflexible,” said a delegate. The prince wanted OPEC to act as a unified group. He has said he believes any exemptions to oil production cuts would bring about a total collapse of the oil market.
Late into the proceedings, Ms. Nahle abruptly signaled she was leaving the virtual meeting to consult Mexican President Andrés Manuel López Obrador. “You are disrespectful,” the Saudi energy minister told her, according to people who were on the call. Following Mexico’s exit, the meeting ended without a final deal.
After the delegate’s exit, Prince Abdulaziz had refused any compromise with Mexico, despite calls from Mr. Trump, trying to help the two delegations reach an understanding.
Another meeting Friday, led by Prince Abdulaziz and the energy ministers of the Group of 20 wealthiest nations ended with little progress. In that meeting, the Saudi royal battled with European representatives, including those from the U.K., France, and Germany, according to people familiar with the matter.
Prince Abdulaziz, the son of the Saudi king and half-brother to designated heir to the Saudi throne, Prince Mohammed, was the first royal ever to receive Saudi Arabia’s energy portfolio last fall.
His role as oil negotiator was challenging from the start. He blocked Angola from a technical meeting and then argued with the African producer over small cuts, which almost derailed his first major summit as OPEC’s de facto chief in December.
At a conference last month, the prince scolded Russian energy minister Alexander Novak, saying Russia would regret refusing to cut production. The split abruptly ended a more than three-year collaboration between the two oil giants and sparked a price war.
