The ViewOil cut deal: Trump did his bit for global stability, but the world blinked and missed it

The oil price war might have dragged on, if the US president had not stepped up

Donald Trump did not just speak to the Russian and Saudi leaders about cutting oil production, he also offered to help Mexico meet its quota

4-MIN READ4-MIN

US President Donald Trump brokered a deal that ended the oil price war. The irony is his single most statesmanlike initiative has been buried in the Covid-19 news cycle. Photo: EPA-EFE

Published: 5:00pm, 16 Apr 2020Updated: 10:17pm, 16 Apr 2020

It is a unique news story. All the top 10 stories of any major news outlet over the last month have been about the coronavirus. We have lost a couple of months of history to that one dominant narrative.

The unique story I am mentioning is not the virus though, but the fierce trade war fought right under our noses that at any other time would have had the stock markets by the throat – the oil war.

Global oil demand was already dramatically shrinking by the end of January as the Chinese economic shutdown caused a decrease of 3 million barrels a day – 20 per cent of China’s consumption, and 3 per cent of the world’s. In the space of a month, the price of Brent crude sank from US$68.91 in January to US$54.45 in February. It was called the largest demand shock since the September 11 attacks. The pressure was on Opec to cut production.

That was not so easy as the world had changed, however; members of the cartel are not the only big oil pumpers any more, with an output of 39 million barrels per day, and 11.8 million of that produced by Saudi Arabia. They needed to talk to Russia (11.5 million barrels a day), and the US (nearly 20 million a day last year).

However, the US frankly didn’t care. The oil industry is private, and the US government is keen to keep it that way. After all, US oil production has exploded over the last few years because of hundreds of small shale pumpers using new technology.

Russia refused to play ball if the US was not going to work with Opec, having already agreed to cut production to support prices just in December, when the shale pumpers were still profitable. The Russians and Saudis had once tried unsuccessfully to crush US shale, but this time Saudi leader Mohammed bin Salman wanted to push prices up and Russian President Vladimir Putin refused to cut production unless the Americans did. So the Saudi leader figuratively said, “A coronavirus on all your houses,” and opened the taps in early March.