The OPEC + deal ended on April 1. However, discussions have already started on a possible new format for interaction between key global oil exporters: OPEC+ may be replaced by OPEC+ 2.0. But without American involvement, the new alliance is not possible to the full extent. The United States itself is scarcely ready for such a bizarre compromise, at least Donald Trump issues no guarantees to this effect so far.
Over the few years of implementing the OPEC+ deal, American shale oil producers have reached an unprecedented zenith due to the comfortable world oil prices. However, the current "decline" of OPEC+ and the coronavirus pandemic brought down barrel price assessments. A series of bankruptcies is on the horizon for the American shale industry.
In late March and early April, an unprecedented level of volatility was recorded in the world oil market: March 30 saw Brent stock quotes pass below $22 per barrel, and on close of April 3, they rose to $35. Thus, the weekly difference between the maximum and the minimum price of a Brent barrel exceeded the coefficient of 1.5. Mass media started delving into the "chronicles" of past failures to specify the current bifurcation "bottom" degree.
The price situation was corrected by a tweet of American leader Donald Trump, who declared the readiness of Russia and Saudi Arabia to sit down to talk. The prices went up. That pushed oil exporters back from the brink of the abyss. After all, in late March and early April, the cost of Russian Urals oil, for one, became negative. Its export has become unprofitable for oil companies. Losses of oil companies were estimated at about 1000 rubles per ton, considering logistics and taxes. The price of Urals oil in northwestern Europe first fell to $13 per barrel, and on April 2 passed the milestone of $10.54, having approached the lowest level since March 1999.
The plunge in world crude prices has prompted key global oil producers to seek measures on equilibrating the black gold market. American leader Donald Trump was the first to exhibit activity – he announced to have allegedly agreed with the Saudis that Riyadh, along with Russia, consented to start reducing oil production soon.
On April 3, Russian President Vladimir Putin informed that our country is ready to join the major oil producers' cooperative efforts to reduce production by 10 million barrels per day. But such an agreement should be a "partnership" and involve all the key players, the Russian leader said during a meeting with the economic bloc of the Russian government, the Central Bank and executives of oil companies. In other words, Vladimir Putin hinted the US should join the new OPEC+ deal, which is probably the only way to make it work.
However, the US is hardly ready for such compromises. Donald Trump has not yet given public guarantees of US involvement in a new possible limitative oil agreement. All the more reason not to await any speedy collective decisions. Therefore, the emergency meeting of OPEC+ which was first scheduled for April 6, has already been moved to April 9, world news agencies say. But this will be a test meeting unlikely to yield specific results. But it is important that the Saudis faltered first, urging OPEC+ partners to negotiate. Trump's pressure on the Kingdom is not the only reason – it turned out that Saudi export volumes do not find demand in the market even in the face of dumping. Russia simply responded to Riyadh by counter-reducing the price of its export oil.
And now the key question is what Russia and Saudi Arabia will agree on and what the US will do. The situation is tangled enough. The announced possible daily output reduction by 10 million barrels looks like a monstrous figure. After all, in early March, there was no consensus within OPEC+ on a much more modest limit request – it was about an additional daily reduction by 1.0-1.5 million barrels. What's worse, a number of global investment groups have already estimated the likely potential for a cumulative oil consumption curtailment at the level of 20 million barrels per day or more due to the coronavirus pandemic's impact on the global economy. That is, even the huge reduction of 10 million barrels per day, which they want to discuss during the April OPEC+ session, will not really help the oil market in its recovery.
The March fall in the global oil prices was a serious test for North American oil producers. The strength test was not passed by the American shale oil company Whiting Petroleum. On April 1, it announced the beginning of bankruptcy procedures. According to the Wall Street Journal (WSJ), this is that country's first major firm functioning in this sphere to take such measures amid the falling energy prices.
The Bloomberg agency clarified that the company failed to pay the planned tranche to cover the debt of $262 million, while its total debt reached $2.2 billion. As a result, the owners requested that the debt be written off in exchange for transferring control over the company.
Also, shale oil producers face an urgent reservoirs issue – tank deficiency has increased. In this regard, April 2 witnessed major developers of shale deposits in the United States – Pioneer Natural Resources and Parsley Energy – ask Texas regulators to consider reducing oil production in the state due to falling demand and oil prices. This came from the WSJ with reference to their letter to the Railroad Commission of Texas (the oil and gas industry regulation is part of its expertise).
US President Donald Trump announced on April 3 that American private oil companies will be temporarily allowed to place products in the vaults of the state strategic reserve. Trump made the statement following his meeting with heads of US energy concerns (including ExxonMobil and Chevron Corporation).
Thus, the American President is flexible with shale oil producers. Nevertheless, it is important to bear in mind that cheap oil is a great benefit and development catalyst for the US economy. And in political terms, cheap gasoline for North American consumers is Trump's helping hand in the struggle for a new presidential term in the upcoming autumn elections.