The Trump administration is leaning on Saudi Arabia to dial back its plan to flood the oil market after a price war with Russia helped send prices tumbling to their lowest level in almost two decades.
While its status as the world’s biggest producer means the U.S. is sheltered in part from the collapse, it’s still calling on the Saudis to exercise restraint, according to a person familiar with the situation who spoke on condition of anonymity.
Earlier, the U.S. made its most direct intervention yet, urging Riyadh to “rise to the occasion and reassure” energy markets at a time of economic uncertainty.
Secretary of State Michael Pompeo spoke to Crown Prince Mohammed bin Salman on the eve of a conference call between the leaders of the Group of 20 on the global pandemic and its economic fallout.
“The secretary stressed that as a leader of the G20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty,” the State Department said on Wednesday.
Oil prices have plunged as the Russian-Saudi price war compounded the unprecedented hit to consumption from the coronavirus pandemic. Futures pared losses after news of Pompeo’s call, with Brent crude little changed near $27 a barrel.
The U.S. view is that the oil glut aggravates an already difficult economic outlook, and it wants all nations to work together to reassure energy markets, according to an official who asked not to be named. Several discussions have already taken place with senior Saudi officials, the person said.
“This diplomacy matters,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former oil official at the White House. “Both Republican and Democrat White House administrations have asked Saudi Arabia to help the global economy during crises, and in the past they’ve responded.”
Oil is expected to be discussed on the G20 call, at least as part of discussions on the wider economy, according to a person familiar with the situation.
The price war was unleashed after Saudi Arabia failed to convince Russia to agree on deeper production cuts for the OPEC+ alliance. So far, the thinking in Riyadh remains that only a collective output cut, rather than unilateral action by the Saudis, can turn the market around.
The magnitude of the oversupply is such that Russia and Saudi Arabia would need to completely stop all their output to balance the market. Top oil trading house Vitol Group puts the glut right now at about 20 million barrels a day.
Even as policy makers committed trillions of dollars to offset the harm from the pandemic, recent price recoveries have been short-lived as large parts of the global economy shut down. Both sides show no signs of giving up their race to flood the world with crude and grab market share.
The U.S. also tried in 1986 to convince Saudi Arabia to abandon a price war. At that time, President Ronald Reagan dispatched vice-president George Bush in an effort to persuade the kingdom to change course as the oil industry in Texas and Oklahoma was hammered. Bush was unable to convince Riyadh and the oil price war went for another six months.
“U.S appeals didn’t work then, even less likely to work now,” tweeted Suzanne Maloney, director of foreign policy at the Brookings Institution and a former U.S. diplomat.
–With assistance from Ilya Arkhipov.