The OPEC+ oil cartel is pressing to form a global coalition to cut output and stem the historic rout in crude prices, with a deal balancing on a key meeting on Friday between U.S. President Donald Trump and American oil executives. Crude surged on the efforts.

Trump touted the idea of global cutbacks on Thursday, and it now looks to be gaining traction. Vladimir Putin, in a meeting Friday with Russia’s oil-industry bosses, said trimming global oil production by about 10 million barrels from first-quarter levels is possible. That figure was first mentioned by Trump as he called for a coordinated effort.

Putin said Russia is in “close contact” with Saudi Arabia, and had contacts with the U.S.

A meeting of OPEC+ members, including Russia, has been hastily scheduled for Monday as the coronavirus pandemic knocks out as much as a third of global demand. At the same time, the oil-price slump threatens the budgets and political stability of oil-dependent nations, the existence of the U.S. shale industry and millions of jobs in a sector already in turmoil.

Oil is still well below its start-of-the-year level

There remains obstacles. It would require agile and complex diplomacy at a time when governments are focused on the fight against the virus itself. And there’s no indication Trump will bow to Saudi and Russian demands that the U.S. and other countries join the cuts.

Trump’s meeting on Friday gathered chief executives of the nation’s biggest refiners and producers with deep divisions over what should be done, especially on the question of possible tariffs on Saudi Arabian oil. That may force Trump to make a difficult decision that could hurt some executives who are among his most ardent supporters.

“We’ll get our energy back,” Trump said during a portion of the meeting open to reporters. “I’m with you 1,000%. It’s a great business, it’s a very vital business and honestly, you’ve been very fair. You’ve kept energy prices reasonable for a long period of time.”

Oil extended its surge in New York on Friday with U.S. West Texas Intermediate futures rising US$3.02 to settle at US$28.34 a barrel. Global benchmark Brent crude for June settlement jumped 14 per cent to US$34.11 a barrel. Still, prices are less than half the levels at the start of the year.

A deal with non-OPEC+ nations including the U.S. would set a historic precedent. The Organization of Petroleum Exporting Countries has been managing supply since 1960, but its power has waned since the shale revolution turned the U.S. from importer to major producer. International Energy Agency head Fatih Birol said Saudi Arabia should organize a G20 meeting to address the glut.

While there is no sign of a truce on the ground -- Saudi Arabia is sticking to a pledge to ramp up exports -- the diplomatic situation has evolved quickly. For several days, Saudi Arabia had been wrong-footed by Russia as Moscow sounded open to talks and blamed the price collapse on the kingdom. By changing tack and saying publicly it’s ready to cut, the kingdom put the onus back on Moscow. There’s still no official word from the Kremlin on its position.

It’s a battle of wills -- and egos -- between Putin and Saudi Crown Prince Mohammed bin Salman. And Trump is watching, trying to force them into a deal without committing to too much himself. Even if an accord can be struck, a cut of 10 million barrels a day would barely dent the glut of oil that has been created by the economic fallout from the pandemic. Traders estimate the lost demand could be as high as 35 million barrels a day.

A 10 million-barrel reduction “may be a good start,” Birol said in an interview on Friday. Nevertheless, “in the second quarter we may well see a stock build of over 15 million barrels a day. This is the reason, I think, we need to do more.”

In some corners of the market, physical prices have gone negative and some producers are expected to start suspending output as there’s not enough space to store the excess crude. Tankers have filled up fast as ships are being used as storage rather than transport.

Painful price war

For many in the petroleum industry, Saudi Arabia and Russia have no choice but to cut.

“In our view there is no OPEC+ choice involved, the rhetoric is window-dressing, the market will deliver cuts,” said Paul Sankey, a veteran oil analyst at Mizuho Bank Ltd.

Oil-producing nations around the world are feeling the pain of the price war, which started a month ago after Russia refused to take part in deeper cuts. Saudi Arabia aggressively discounted its crude days later, in a move to seize customers from Russia’s traditional markets.

Shale producers in the U.S. are struggling and national finances in multiple countries are under pressure. Russia, for example, is now expecting oil prices at US$20 a barrel this year and will ramp up borrowing to make up for a budget shortfall.

Saudi Arabia will also have to make deep budget cuts as oil accounts for the vast majority of its revenue. The kingdom’s next move in the price war could come as soon as Sunday, when it sets official prices for its crude exports. The operation could be postponed, however -- as it was last month -- to avoid prejudicing the Monday meeting.

--With assistance from Salma El Wardany, Paul Burkhardt, Dina Khrennikova and Jake Rudnitsky.