Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman Al-Saud and Russian Energy Minister Alexander Novak at the start of an OPEC and NON-OPEC meeting in Vienna, Austria, December 6, 2019.

Leonhard Foeger | Reuters

Some of the world’s largest oil producers will hold an emergency meeting on Thursday to try to agree on historic output cuts, as the coronavirus pandemic continues to crush worldwide demand for crude.

OPEC and non-OPEC partners, sometimes referred to as OPEC+, are scheduled to hold talks via video-link from 4 p.m. Vienna time to discuss the next phase of oil production policy.

President Donald Trump has fueled hopes of a cut far larger than any deal OPEC+ has ever agreed on before, suggesting the energy alliance could take between 10 to 15 million barrels of crude off the market.

A simmering feud between OPEC kingpin Saudi Arabia and non-OPEC leader Russia is thought to be one of many possible complications to an unprecedented production cut.

Riyadh and Moscow, who fell out when a previous pact to curb supply broke down last month, have signaled that any decision would depend on the U.S. and other non-OPEC producers joining in.

Trump has shown no appetite to mandate such a policy but suggested earlier this week that oil production in the U.S. had already fallen.

Energy ministers from the Group of 20 major economies will convene for their own extraordinary video conference on Friday.

The G-20 presidency said Tuesday that the meeting would be held “to foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy.” 

OPEC+ hopes to persuade non-OPEC producers present at the G-20 meeting, such as the U.S., Canada, Norway and Brazil to participate in oil production cuts. Saudi Arabia, OPEC’s de-facto leader, holds the rotating G-20 presidency this year.

International benchmark Brent crude traded at $34.06 a barrel Thursday morning, up over 3%, while U.S. West Texas Intermediate (WTI) stood at $26.26, more than 4% higher.

Brent and WTI both closed higher in the previous session, snapping a two-day losing streak amid elevated hopes of a historic production cut.

Record cuts still not enough

“Assuming that a deal is reached — our base case now — the key question will be whether its size and timing will improve global oil balances sufficiently to support prices above current levels,” analysts at Goldman Sachs said in a research note published Thursday.

“This is key, as a cut that would prove too little too late would lead to storage saturation and additional necessary production shut-in, with distressed producers driving physical crude prices and spot oil prices sharply lower.”

“Our updated 2020 global oil balance suggests that a 10 million barrels per day headline cut would not be sufficient, still requiring necessary price induced shut-ins on top of such voluntary curtailments,” they added.

On Thursday morning, Reuters reported, citing two unnamed OPEC sources, that differences between Riyadh and Moscow remain over the baseline and volumes for any oil cuts.

Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC via email that he expects a deal to either fall apart, or for the assumed 10 million barrels per day production cut to be a medium-term target.

“We don’t expect anything will be decided before the G-20 meeting,” Schieldrop said, partly because the OPEC+ meeting had been “instigated” by President Donald Trump.

“If the G-20 cannot deliver on Friday 10 April according to what is required by OPEC+ on Thursday 9 April, then Saudi Arabia and Russia can blame the G-20 and get some political heat from President Trump off their backs,” he added.

How did we get here?

The coronavirus pandemic has meant countries around the world have effectively had to shut down, with many governments imposing draconian measures on the daily lives of billions of people.

The restrictions have created an unprecedented demand shock in energy markets, just as a price war broke out between powerhouse producers Saudi Arabia and Russia.

Last month, Saudi Arabia recommended cutting production by 1.5 million barrels per day as the coronavirus outbreak curbed demand.

However, Moscow rejected the proposal, thus bringing an end to the group’s three-year production-cutting pact on March 31.

Saudi Arabia, Kuwait and the United Arab Emirates have all since ramped up oil output.

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