President Trump took a victory lap as global oil prices ticked up slightly Monday, a day after his personal diplomacy helped nail down a deal among Russia, Saudi Arabia and other major players to cut production in response to an unprecedented collapse in demand because of the COVID-19 pandemic.
Mr. Trump hinted that the size of the cut may be even larger than the top suppliers revealed, but the modest price increase indicated that traders still have a lot of skepticism.
Analysts said it is far too soon to tell whether the agreement will help raise rock-bottom oil prices, but Mr. Trump latched onto the pact to claim a badly needed policy win as the economy craters.
Indeed, some analysts said the president deserved credit for putting public pressure on Moscow and Riyadh to end the brutal price war while shielding U.S. producers from committing to further reductions or allowing Washington to be sucked into the feud.
The U.S. has been of two minds about the price war. Mr. Trump originally touted the sharp fall in prices for consumers as massive production led to a vast oversupply.
But with oil prices under $25 a barrel and heading lower, Mr. Trump was looking at pain in Texas and other oil-producing states that he is counting on for his reelection this fall.
Brent Crude prices, the international standard, rose 26 cents Monday to close at $31.74 a barrel after sharp declines last week. Brent Crude is still down by some 55% since the start of the year.
U.S. benchmark crude rose more than $1 before closing the day down 35 cents to settle at $22.41 a barrel.
The weekend agreement between Russia and the Saudi-led OPEC calls for suppliers to cut daily output by about 9.7 million barrels a day, about 10%. The reductions are to be phased out by 2022.
The president took to Twitter and boasted of an even grander scale and said American frackers and drillers will be the big winners once the economy reopens.
“Having been involved in the negotiations, to put it mildly, the number that OPEC+ is looking to cut is 20 million barrels a day, not the 10 million that is generally being reported,” Mr. Trump said. “If anything near this happens, and the World gets back to business from the COVID-19 disaster, the energy industry will be strong again, far faster than currently anticipated.”
Saudi estimates
Offering at least some support for Mr. Trump’s hints, Saudi Energy Minister Prince Abdulaziz bin Salman Al-Saud said the deal will result in a de facto daily cut of about 19.5 million barrels when taking into account other factors such as cuts by non-OPEC countries and the movement of oil to reserve stockpiles rather than to market.
Energy analysts say it’s hard to overstate the role Mr. Trump played in securing the landmark deal. His public demands on Russia and Saudi Arabia and his behind-the-scenes negotiations with the leaders of both countries seem to have dramatically changed the tone of talks in the past week.
When Mexico’s government balked at the cuts it would be forced to make as part of the deal, Mr. Trump stepped in Friday to say he would help Mexico recoup some of its losses.
“Many of us believed, given how the Saudis were digging in, how the Russians were digging in, that we would get no offramp in this price war until the June OPEC meeting,” Helima Croft, managing director at RBC Capital Markets, said during a conference call hosted by the Atlantic Council. “President Trump’s intervention, I think, really changed the trajectory of this crisis.”
Still, it could take months before the true impact of the deal is felt, and it remains to be seen whether such a large cut in supply will make up for a sharp contraction in demand as countries shut down their economies to fight the pandemic.
The cut of 9.7 million barrels per day doesn’t take effect until May 1, and it’s not entirely clear when nations will begin to lift social distancing orders, which have ground domestic and international travel to a halt and slashed demand for gasoline as a result.
Early signs, however, were mostly positive. The international benchmark Brent Crude price rose by 2.1%, closing at $32.14 per barrel.
Overall prices have fallen by about 60% since the beginning of the year, and analysts warned that they would have dropped further without the Russia-OPEC truce.
The final terms of the agreement also represented a win for U.S. oil-and-gas producers on two major fronts.
The American fuel sector had urged Mr. Trump to steer clear of imposing tariffs on foreign fuel imports — a move he threatened earlier this month if Russia and OPEC didn’t cut output — because such a strategy, they argued, could raise the prices of production materials for U.S. firms.
They also praised Mr. Trump for ensuring that the U.S. oil industry did not have to make concrete promises to cut their own production even further, a condition Russia and other producers had pushed for early in negotiations.
U.S. producers — who have higher costs that rivals in Saudi Arabia and Russia — say they’ve already cut output in response to market factors and that the weekend agreement merely brought the rest of the world onto the same playing field.
U.S. praise for deal
Industry groups and a number of Republicans from oil patch states on Capitol Hill hailed the agreement.
Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski said Monday she was “glad the Saudis and Russians are taking a step back from their economic warfare against U.S. producers, and I thank President Trump and [Energy Secretary Dan Brouillette] for their leadership in reaching this agreement.”
The Alaska Republican said she and two GOP colleagues talked with Saudi Minister al-Saud for two hours Saturday to push the production-cutting deal.
“We commend the president’s leadership and his administration’s diplomatic engagement to urge nations to bring global oil supply in line with the lower energy demand as a result of the pandemic,” Mike Sommers, president and CEO of the American Petroleum Institute, said in a statement.
But a win for the U.S. seems to be a major loss for Russia, according to some analysts. As the coronavirus economic shutdown began last month, Moscow initially resisted calls to cut its own oil production.
Early talks with Saudi Arabia centered on Russia cutting around 300,000 barrels per day, a number the Kremlin refused to meet.
The final deal calls on Russia to cut more than 2.5 million barrels each day.
Entering a price war with Saudi Arabia was “a strategic mistake and now we’re paying the price, a much higher price than we could have paid,” Andrey Kortunov, director of the Kremlin-founded Russian International Affairs Council, told Worldoil.com. “This looks like a victory for the U.S., and Russia ends up a bigger loser than Saudi Arabia.”
Despite its huger reserves, Russia “is facing a tough dilemma: lower oil prices versus lower oil output,” Evghenia Sleptsova, an analyst with Oxford Economics, told the Moscow Times. “Our analysis shows that the impact on GDP of either oil at $25 [a barrel] or output at 9.7 million barrels per day is almost the same — both cost about 2-2.3% of GDP.”
Under the Russia-OPEC deal, production will drop by 9.7 million barrels per day for two months, beginning May 1. For six months after that, the reduction will be 7.7 million barrels per day.
The reductions will gradually decrease before the deal concludes at the end of April 2022.
• Ben Wolfgang can be reached at bwolfgang@washingtontimes.com.
Please read our comment policy before commenting.