The G20 energy ministerial discussion tomorrow aims to reassure Opec+ producers that key oil consuming nations globally will do their part to stabilize markets by filling their strategic oil reserves.
The US and the IEA, which pushed for a G20 discussion, also will argue that deep cuts in drilling expenditures by oil companies globally mean that state-controlled or owned producers are not alone in addressing the supply glut.
The G20 meeting is meant to build on a presumed success of today's Opec+ meeting in reaching a production cut agreement. But in turn, the outcome of the Opec+ meeting depends on whether Saudi Arabia, Russia and other major producers accept those assurances from key consuming nations at face value.
"I expect that some countries will announce that they are going to buy oil in order to fill their strategic oil reserves and as a result give a lifeline to oil demand," IEA executive director Fatih Birol told Argus earlier this week.
Mexico, which is taking part both in the Opec+ meeting and the G20 discussion, said it does not anticipate cutting production as part of a wider agreement between the members of Opec and other major oil producers. "Most countries are working to reach consensus on stabilizing oil (markets)," Mexico's energy minister Rocio Nahle said on Twitter at the start of the Opec+ discussion.
State-controlled Petrobras, which accounts for around three-quarters of Brazil's production, already has cut 200,000 b/d from domestic output in response to the oil price crash.
A pledge to put more oil into strategic petroleum reserves (SPR) will be even more difficult to implement than production cut commitments by the Opec+.
Strategic crude stocks in the OECD countries' SPR facilities as of the end of January were just 85mn bl lower than the maximum level recorded since 2005. Most of that spare capacity is in the US, which has 77mn bl of storage available in its US Gulf coast SPR facilities. OECD stocks of products and NGLs are just 14mn bl below the maximum level since 2005.
The US administration, in part to reassure the Opec+, says it will make use of its legal authority to expand the SPR storage to 1bn bl from the current 713.5mn bl — potentially adding 286.5mn bl of storage space. But a major expansion of the reserve is doubtful because of the technical obstacles to increasing capacity, experts say.
Democrats in the US Congress blocked efforts to allocate $3bn to fill the available 77mn bl of storage, leading the administration to seek to lease the capacity. US lawmakers from oil-producing states are mounting another attempt to obtain funding for an SPR build — but that pales in comparison with the production cuts expected of the Opec+ group.
Outside of the OECD, China can potentially offer crude storage space while India is planning to add 4.5mn bl to its strategic stocks. Globally, the use of tankers to store crude is growing while onshore companies are eyeing the use of rail cars and even pipelines to store crude.
"We can imagine that China, for example, will benefit from this situation to grow their strategic storage," Total chief executive Patrick Pouyanne said in an interview released by the IHS CeraWeek conference organizers yesterday.
While the US Department of Energy is touting government statistics to show that US crude output will decline by 2mn b/d, any price support from an Opec+ production cut decision is likely to lead at least some producers to maintain production on line longer.
The lack of storage space may in the end be the only real break on production plans by US shale producers and international oil companies.
"We do not have enough storage around the world in a few of months, so (companies) will shut in production," Pouyanne said.
