Oil Deal On Verge Of Collapse As Russia Balks At Proposed US "Production Cut"

As oil traders look with dread and fear to tomorrow's OPEC+ teleconference one day after crude oil tumbled amid speculation that the production cut standoff will not be resolved...

... there was a sliver of hope that oil prices may rebound after Reuters reported that Saudi Arabia, Russia and allied oil producers will agree to deep cuts to their crude output at talks this week but only if the United States and several others join in with curbs to help prop up prices that have been hammered by the coronavirus crisis.

However, in an attempt to have its cake and eat it too, the U.S. DOE said on Tuesday that U.S. output is already falling without government action, in line with the White House’s insistence that it would not intervene in the private markets. And as reported on Tuesday morning, super-major Exxon announced that it would slash capex by up to 30%, which would impact output by several hundred thousands barrels per day... but only in 2021 and onward. In other words, any organic decline would take place slowly, over the course of the next two years.

“With regards to media reports that OPEC+ will require the United States to make cuts in order to come to an agreement: The EIA report today demonstrates that there are already projected cuts of 2 (million bpd), without any intervention from the federal government,” the U.S. Energy Department said.

That is not enough for OPEC+ however, and certainly not Russia, which on Wednesday made clear that market-driven declines in oil production shouldn’t be considered as cuts intended to stabilize the market, Kremlin spokesman Dmitry Peskov tells reporters on conference call.

"These are completely different cuts. You are comparing the overall demand drop with cuts to stabilize global markets. It’s like comparing length and width," Peskov says in response to a question of whether Russia would accept for the U.S. to have only a market-driven drop in output as part of a deal to stabilize oil market

"These are different concepts, they cannot be equated. Tomorrow there will be an exchange of views among specialists."

But not American "specialists": sources said no one from the Trump Administration was expected to attend Thursday’s call, which means the call - whose sole purpose is to get the US to join the production cuts - will be moot.

Iran’s Oil Minister Bijan Zanganeh also indicated that OPEC+ now wants the US to actively cut production when he tweeted on Tuesday that "before any meeting between OPEC and non-OPEC there needs to be an agreement on production numbers for any country that will reduce production,” adding that the United States and Canada need to play a role in determining production cuts.

While Saudi Arabia, Russia and other members of the group known as OPEC+ have expressed willingness to return to the bargaining table, they have made their response conditional upon actions by the United States and other countries that are not members of OPEC, and it now appears that the US is reluctant to shift away from a organic production cut. No agreement has yet been formalized.

OPEC+ is due to hold a video conference on Thursday at 1400 GMT, after U.S. President Donald Trump said last week that Riyadh and Moscow had agreed to cut an unprecedented 10 million to 15 million bpd, or about 10% to 15% of global supply. He has not committed to any actions by U.S. companies.

Then there is the elephant in the room, of course, that even a 10mmb/d production cut will not be nearly enough to balance an oil market where demand has plunged by more than 25mmb/d.

“The scale of this challenge is so large that OPEC+ cannot solve it,” said Jason Bordoff, director of Columbia University’s Center on Global Energy Policy and a former Obama administration official. “Only some and not all of the world’s producers have the willingness and ability to limit production.”

Finally, and at the same time as the US is being forced to join the cuts, Riyadh and Moscow are trying to overcome the rancor stemming from March’s talks, when a deal to extend production cuts fell apart. Since then, Saudi Arabia has been flooding the market with extra crude, and it has insisted it would no longer carry what it considered an unfair burden of output cuts.

Source: zerohedge.com