Donald Trump’s legendary deal-making ability during his years as a real-estate mogul is more fantasy than reality, but the president outdid himself in this weekend’s high-stakes oil diplomacy. After several near-collapses 23 countries, including the U.S., collectively pledged to curtail oil output by perhaps 15 million barrels a day.
The most impressive aspect of the deal, from the U.S. perspective, is that Mr. Trump got something for hardly anything. Much of the voluntary cutting will be done by members of the Organization of the Petroleum Exporting Countries and their nonmember allies—some 9.7 million barrels a day. The remainder mostly seems to be output that would have been lost anyway from high-cost sources such as U.S. shale, Canada’s oil sands and offshore Brazilian fields. By pledging to make up some 250,000 barrels a day of cuts demanded of OPEC+ member Mexico with U.S. reductions, a face-saving agreement was sealed.
In the short-term, the cuts won’t be quite enough to soak up an unprecedented collapse in demand as a result of the coronavirus pandemic. What they can do is prevent an even worse collapse in spot prices and surge in inventories. Without an agreement, barrels in parts of North America were headed for the low single digits within weeks.
But Mr. Trump also overpromised to his domestic audience by claiming on Twitter that the deal would “save hundreds of thousands of energy jobs in the U.S.” If lockdowns remain in place, then it won’t, as prices remain too low for fresh investment in shale production or infrastructure. And if the world starts to get back to normal later this year, then jobs still probably won’t be saved either, as Saudi Arabia, Russia and others can restore output to fill the vacuum left by shale.
Yes, prices certainly will be higher than they might have been, helping the bottom lines of U.S. energy companies and alleviating a chaotic physical crude glut. So the deal is no panacea, but by getting others to agree to absorb the short-term cost, it is artful.
Much of the voluntary cutting in oil output will be done by members of the Organization of the Petroleum Exporting Countries and their nonmember allies—some 9.7 million barrels a day.
Photo: leonhard foeger/ReutersWrite to Spencer Jakab at spencer.jakab@wsj.com
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