By Timothy Gardner and Vladimir Soldatkin
WASHINGTON/MOSCOW (Reuters) – Russian President Vladimir Putin called on Wednesday for global oil producers and consumers to address “challenging” oil markets while U.S. President Donald Trump complained that oil cheaper “than water” was hurting the industry.
Oil prices <LCOc1> fell nearly 70% from January highs as lockdowns due to the coronavirus hammered demand and as Saudi Arabia and Russia have flooded the market in a race for market share after a deal they engineered on supply curbs broke down.
Oil and natural gas sales are a key revenue source for the Russian coffers, while shale oil producers in the United States are also suffering from cheap oil.
Speaking at a government meeting, set up via a video link as a precaution against the coronavirus, Putin said that both oil producers and consumers should find a solution that would improve the “challenging” situation of global oil markets.
He also said if investments into the oil sector fall, oil prices are sure to spike, something he said “no one needs.”
“That’s why we, together with the main producers and consumers, should work out such decisions, which would mitigate the situation on the market on the whole,” Putin said, according to the readout of the meeting.
FLURRY OF DIPLOMACY
On Tuesday, U.S. Energy Secretary Dan Brouillette spoke with his Russian counterpart Alexander Novak about the price slump and they agreed to hold future discussions involving other major world oil producers and consumers.
The call occurred a day after Trump and Putin agreed in a phone conversation to have their top energy officials discuss global oil market turmoil.
Putin said that the United States was also worried about the state of the oil market as shale oil producers need a price around $40 per barrel to turn a profit.
“That’s why this is also a hard challenge for the American economy,” he said.
Trump said on Tuesday he would join Saudi Arabia and Russia, if need be, for talks about the fall in oil prices, which at current levels will squeeze out higher cost production, particularly U.S. shale output which surged in recent years.
Crude oil benchmarks ended a volatile quarter with their biggest losses in history. On Wednesday, oil slid towards $25 a barrel, after touching its lowest level in 18 years. [O/R]
“There is so much oil and in some cases it’s probably less valuable than water. At some points of the world the water is much more valuable. So, we’ve never seen anything like it,” Trump said.
The discussions between Washington and Moscow mark a new twist in oil diplomacy since the collapse this month of a deal between the Organization of the Petroleum Exporting Countries and other producers, including Russia, on cutting production.
The failure to agree an extension to a pact that had propped up the market since 2016 led to the scrapping of all restrictions and a dash for market share.
Brouillette and Novak “had a productive discussion on the current volatility in global oil markets,” Energy Department spokeswoman Shaylyn Hynes said.
“Secretary Brouillette and Minister Novak discussed energy market developments and agreed to continue dialogue among major energy producers and consumers, including through the G20, to address this unprecedented period of disruption in the world economy,” she said.
The Russian Energy Ministry said on Wednesday the ministers noted that the fall in the demand and oversupply created risks for stable supplies to the markets.
The United States has grown in recent years into the world’s largest oil and gas producer, thanks to a technology-driven shale drilling boom. But the current price of oil is below the production cost of many American drillers, threatening the highly leveraged U.S. shale industry.
Trump on Monday said Saudi Arabia and Russia “both went crazy” with their production after the supply deal failed. “I never thought I’d be saying that maybe we have to have an oil (price) increase, because we do,” he said.
The Trump administration is trying to persuade Saudi Arabia, the world’s top oil exporter, to cut crude output. It will soon send a special energy envoy, Victoria Coates, to the kingdom.
The Kremlin said on Wednesday that Russia and Saudi Arabia were not holding talks regarding the oil market at the moment and Russian President Vladimir Putin had no immediate plans to have a phone call with Saudi leadership.
But the Kremlin added that such talks could be set up quickly if necessary.
(Reporting by Timothy Gardner and Vladimir Soldatkin; additional reporting by Darya Korsunskaya and Gabrielle Tétrault-Farber in Moscow and Rania El Gamal in Dubai; Editing by Cynthia Osterman and Edmund Blair)