Less than a day before OPEC+ is supposed to meet virtually to discuss a potential new oil production cut agreement, news comes that Russia has all but dismissed the possibility already. Last time Russia gave warnings in advance that it would reject a deal—in early March of this year—the rest of OPEC+ ignored Russia’s warnings and pushed forward regardless, leading to a series of decisions that crashed the oil market. There is no indication OPEC+ is wiser this time. But the United States can try to salvage the situation.
According to Financial Times, Russia is saying that it will not agree to a cut unless the U.S. agrees to mandated cuts beyond natural declines in production. The US is extremely unlikely to do this, because a mandated cut is impractical in the US, violates free market principals and would most likely be challenged in court by oil companies. Russia is setting the U.S. up as the scapegoat for a failed agreement, laying blame on the U.S. because the U.S. won’t do something that it can’t do.
Before the early March OPEC+ meeting Russia also indicated it would not accept a production cut deal. At that time, Russian president Vladimir Putin made it clear that his energy minister, Alexander Novak, did not need to press for higher oil prices. Saudi Arabia and other OPEC+ countries ignored the warning and pushed forward anyways. The market responded negatively when Russia did just as it hinted it would and when Saudi Arabia subsequently pledged to over-produce.
No one wants the price of oil to fall further, and the U.S. doesn’t want to blamed for something that is not its fault. The U.S. should not be expected to make cuts—if it even could—since it never joined an oil market-setting group. Yet, Russia is setting up a situation where its own refusal will send prices even lower and it will blame the U.S.
If the U.S. government fears Russia will refuse a cut right now, the U.S. proactively manage the situation and call for a postponement of the virtual G20 oil meeting, which is now scheduled for Friday. The U.S .should simply say a meeting is premature and, in addition, mention that Friday is Good Friday, a holiday in much of the world. Ideally, the U.S. could get Canada, Brazil and perhaps others to join in calling for a postponement. The market will likely respond negatively, but not as negatively if a meeting happens and fails to produce a satisfactory agreement. Don’t push a meeting if you can’t be sure Russia, Saudi Arabia and others will make an agreement that will satisfy the market.