G20 oil ministers are to hold an emergency meeting this week after a push by Saudi Arabia and the International Energy Agency as they try to support an industry decimated by the coronavirus pandemic.
With millions of jobs and the stability of the global economy at risk, Fatih Birol, head of the IEA, told the Financial Times that Friday’s talks aimed to find a way to protect energy markets during the crisis.
The meeting would mark the first time the G20 has specifically convened to address energy issues, showing the depth of concern about the oil crash.
“There is a huge structural overhang of supply in oil markets caused by the coronavirus crisis,” Mr Birol said.
“It is coming to a level where it will have significant implications for the stability of the global economy and millions of workers employed in the oil and gas industry. The main task [of the G20] is to provide and maintain the financial and economic stability of global markets so it is perfectly in line with their remit.”
Global oil demand has fallen by more than a quarter as countries around the world have grounded flights and instituted lockdowns in an effort to combat coronavirus. This has led to a crash in prices that threatens to cripple a global industry. Brent crude hit an 18-year low of $20 last week, before recovering to above $30 on hopes producers would reach a deal.
US president Donald Trump has already called on Saudi Arabia and Russia to find a way to cut oil production by at least 10m barrels a day, asking them to pull back from a price war that began last month after they fell out over how to respond to the drop in demand. The two countries, who had previously collaborated through the so-called Opec+ group, are due to meet on Thursday, but remain at loggerheads.
Both have insisted that other countries including the US — the world’s top oil producer — must also participate in cuts. Saudi Arabia, Opec’s largest producer and the holder of the rotating presidency of the G20, has come under pressure from Washington in recent days. The drop in crude prices threatens the future of the US shale industry and Mr Trump has threatened tariffs on Riyadh’s oil sales if it does not reduce production.
US energy secretary Dan Brouillette indicated his country would join the G20 meeting, saying in a statement on Monday that he had spoken with Saudi energy minister Prince Abdulaziz bin Salman “about ongoing challenges and instability in global oil markets”.
“The Secretary reiterated that what began as a dispute between Saudi Arabia and Russia has major implications for the United States and the world. To that end, the two energy ministers agreed to continue this dialogue through a G20 Energy Ministers meeting in the near future,” the statement said.
The US has given no indication it will participate in production cuts, but its output is forecast to fall because of the collapse in prices. Analysts have suggested this could be offered as a token commitment to a broader deal.
Mr Birol said he expected large oil producers within the G20 group — which include the US, Canada, Saudi Arabia, Russia and Brazil — to consider reducing production to tackle a supply glut that is at least 25m b/d in size.
That is threatening to overwhelm storage capacity within weeks and could lead to forced shutdowns of oilfields, damage reservoirs and threaten the long-term future of supplies.
Large oil consumers without their own substantial domestic production, Mr Birol said, could consider buying surplus oil to fill strategic stocks in an effort to help stabilise the market.
He said the problem was too big for Saudi Arabia and Russia to handle alone, arguing that even if they cut by 10m b/d a day — or roughly 10 per cent of global demand before the crisis — the market would still be so oversupplied that prices would continue to crash.
“Even if there was 10m b/d of cuts, in our view we could still see a building of stocks of 15m b/d,” Mr Birol said. “I see that there is a growing consensus that this [the G20] is the forum to address this problem.”
Traders remain sceptical a deal can be reached at the meeting, which falls on Good Friday, a public holiday in many G20 countries.
Many G20 members, including Japan, South Korea produce very little oil, so may have little incentive to see prices rise as recession looms. Others such as the UK, China and India produce oil but are more reliant on imports.
Energy Aspects, a consultancy, said that at most they could see 6m-7m b/d of additional cuts to production taking place, far less than needed to stop the industry becoming overwhelmed by supply. “Prices will have to fall to cause production shut-ins,” said Amrita Sen at Energy Aspects.
Source: Economy - ft.com
