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Oil Prices Surge After Trump Hints at Saudi-Russian Truce
President Trump says a production cut of 15 million barrels per day is possible, is it?
Here is today’s Foreign Policy brief: Trump teases an oil price agreement, the U.S. employment report is due today, and global coronavirus cases exceed 1 million.
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Oil Prices Surge After Trump Teases Price Agreement
Oil prices posted record daily increases yesterday after U.S. President Donald Trump teased the possibility of a truce in the Saudi-Russian price war and a dramatic cut in oil production. Trump said production could decrease by as much as 15 million barrels per day, prompting Brent Crude prices to surge 47 percent before settling back down to about 30 dollars per barrel.
Foreign Policy’s Keith Johnson helps put the move in context, “There is no actual agreement to trim production among the three biggest oil producers—the United States, Saudi Arabia, and Russia—let alone the other members of OPEC or other countries, like Mexico or Brazil. And it’s also unclear what Trump was even referring to in terms of production cuts—whether total barrels of oil or barrels per day or who might be making the cuts or why.”
Dmitry Peskov, a Russian government spokesman, said no such deal is currently on the table, however, Saudi Arabia immediately called for a meeting between the OPEC plus members “and other countries” to seek a deal.
The United States has traditionally not been a part of these kinds of meetings, but its new status as the world’s largest oil producer, coupled with its particularly expensive method of extracting oil, means that things could be about to change. Ryan Sitton, a regulator of the Texas oil industry, said he has talked with Russia Energy Minister Alexander Novak about the possibility of a 10 million barrel per day cut. President Trump meets with oil industry executives today, with U.S. strategy likely to top the agenda.
With the world under lockdown, isn’t a production cut already a necessity? In the short-term, no. Both Russia and Saudi Arabia have enough in cash reserves to ride out any price drop, especially in Russia’s case. Smaller producers do not have that luxury, and so are more likely to go along with any deal. One immediate problem that cratering demand is causing the oil industry is physical storage capacity: If stores are overloaded and can’t be shifted, oil fields may have to cease production entirely—and it can be difficult to start back up again. Cutting production helps solve that issue. “It’s a lot more important to slow the flow of oil into storage to prevent the price from catastrophically collapsing,” Kevin Book, managing director at research firm ClearView Energy Partners, told FP.
How much is the United States likely to influence the talks? The extent of U.S. involvement will be become clearer following Trump’s meeting with oil executives, however, signals of U.S. strategy are beginning to emerge. U.S. Special Representative for Venezuela Elliott Abrams made use of U.S. leverage over Russian oil producer Rosneft by signaling that he would consider dropping sanctions against the company. “If Rosneft Trading has nothing to do with Venezuela, then the sanctions that are based on its conduct in Venezuela or with respect to Venezuela should be lifted … I don’t know if that’s true yet,” he said.
What We’re Following Today
U.S. employment statistics. At 8:30 a.m. in Washington, the U.S. Bureau of Labor Statistics will produce its monthly update on the U.S. employment situation. However, since its methods of calculation rely largely on data from before the worst coronavirus-related shocks, more accurate numbers are not likely until early May.
On Thursday, the United States shattered its previous weekly record number of jobless claims, as 6.6 million Americans filed for unemployment. That figure is likely higher, as many state labor departments were not able to keep up with demand. According to a new poll by the Associated Press, about half of all working Americans reported a drop in household income as a result of the coronavirus pandemic.
Commander of coronavirus-stricken aircraft carrier dismissed. The U.S. Navy is to remove the commander of the aircraft carrier Theodore Roosevelt after a letter he wrote, outlining deteriorating conditions on the vessel, was leaked to the media. Over 100 sailors onboard have tested positive for the coronavirus, and the ship has docked at a naval base in Guam in order to cope with the outbreak. Speaking to Reuters, anonymous officials said the commander, Captain Brett Crozier, was being relieved because it is believed he was the source of the media leak.
U.S. aircraft carriers are likely to be shifted around in response to the pandemic, and FP’s Jack Detsch reports that the United States will remove an aircraft carrier previously slated to stay in the Persian Gulf. It’s not yet clear where the carrier will now go, but it’s expected to deploy to the Pacific.
Coronavirus cases top one million. As U.S. cases continue to rack up, the number of reported coronavirus cases worldwide has passed the 1 million mark—doubling in the past week. In New York, where over 92,000 cases have been reported, Governor Andrew Cuomo said the state only had enough ventilators stocked to last the next six days.
EU apologizes to Italy. EU Commission President Ursula von der Leyen has apologized to Italy for the bloc’s coronavirus response, as dormant tensions resurface between Europe’s north and south. In a letter in the Italian newspaper La Repubblica, Von der Leyen said the European Union would set aside 100 billion euros to assist the worst hit countries and that “Today Europe is rallying to Italy’s side.” The letter did not mention the so-called coronabonds that Italy has requested, and northern countries like the Netherlands and Germany have balked at. Earlier this week, FP’s Keith Johnson reported on why an agreement on a financial solution to the coronavirus crisis is so hard to find.
North Macedonia joins NATO. In a joint statement, NATO’s foreign ministers welcomed North Macedonia as NATO’s 30th alliance member. North Macedonia removed a major stumbling block to its accession earlier in the process by changing its name from Macedonia and thereby ending a dispute with fellow member Greece.
Keep an Eye On
UN calls for Yemen peace talks. The United Nations has renewed a call for talks between warring groups in the protracted war in Yemen, Reuters reports. The UN has proposed convening the Yemeni government, the Saudi-led coalition, and the Houthis in a bid to establish a ceasefire between the sides. The Saudi coalition bombed the Houthi-held Yemeni capital Sanaa earlier this week in retaliation for an attempted missile strike on Riyadh by Houthi forces.
ECJ rules in refugee case. Hungary has again fallen foul of the European Union after the European Court of Justice ruled that they, along with the Czech Republic and Poland, “failed to fulfill their obligations under European Union law” in not meeting refugee quotas established during the 2015 migrant crisis. The Czech Republic took in 12 refugees, while Hungary and Poland took in none, citing threats to public safety. The three countries are now likely to face fines from the EU.
Afghan prisoner swaps begin. In the first step of confidence-building measures ahead of potential peace talks, the process of prisoner exchanges is beginning between the Afghan government and Taliban. To start, 100 Taliban militant prisoners and 20 imprisoned Afghan forces will be released, according to statements by both sides. The Taliban has demanded that 5,000 of its prisoners be released before peace talks can begin.
FP Conference Call—Please join Foreign Policy for a lively discussion on the economic impacts of the coronavirus pandemic today at 11 a.m. EST. FP Managing Editor Ravi Agrawal will be in conversation with Raghuram Rajan, the former chief economist of the International Monetary Fund and former governor of India’s central bank, and Adam Posen, the president of the Peterson Institute for International Economics. Join the livestream here.
Odds and Ends
The residents of Chicureo, north of the Chilean capital Santiago, probably wish an invasion of wild mountain goats was their only problem. With Santiago under lockdown, mountain lions have now begun venturing deeper into the city, with one found exploring a Chicureo apartment complex late Wednesday night. Chilean authorities say they have already captured two lions in the past ten days. Marcelo Giagnoni, the regional director of Chile’s Agriculture and Livestock Service, said drought in the Andes foothills surrounding Santiago likely drew the animals closer to the city. Chicureo’s mountain lion has been transferred to the Santiago zoo, where it will be examined before being released.
That’s it for today.