Price-rigging, once a globally reviled specialty of the Organization of Petroleum Exporting Countries, has been legitimized by the world’s 20 biggest countries but just as OPEC has failed to control the oil market, so will the G20.
Working against today’s G20 agreement to reduce production, and hoping the price of oil will increase are the same forces that have dogged oil for a decade; increasing supply and declining demand.
This time it will be different as more countries are participating to restrict production misses the argument that all OPEC members cheated on previous promises to produce less oil, and what was hard to control in the previous would be impossible in the future.
Since the COVID-19 pandemic and subsequent lockdowns of major economies, alongside the difficulty of large oil producers rapidly cutting supply to try to overcome a storage crisis, there is an even harder issue of stimulating demand.
Stabilizing the world’s oil industry, which was the central aim of this week’s meetings of leading oil-producing countries, including the United States, is more than a logistical problem, it’s a political nightmare because it needs a high degree of confidence between the signatories to the agreement.
The question here is since when did the U.S. start to trust Russia, or that prominent OPEC member, Iran?
Andrew Gould, the industry’s senior citizen said, “No matter how much of a strongman you are, in front of a (COVID-19) pandemic, your power is limited. You have to go back to the Great Depression (of the 1930s) to find a time when the market behaved as freely as it does now.”
Sobering as that view is of the oil market it may potentially be worse as it relies so much on OPEC and other oil producers maintaining a relationship of confidence where none has existed in the past — and throughout the COVID-19 pandemic.