President Trump celebrated the deal in tweets, saying it could produce even more cuts than what it officially outlined.
Photo: Kevin Dietsch/Pool/Zuma PressDonald Trump scored a win for the U.S. oil industry this weekend by deploying one of his most common strategies from his years in real estate: demand a lot, offer little and wait.
Oil-producing nations agreed Sunday to historic production cuts to help address a record glut in oil markets. The accord resolves a costly battle between Saudi Arabia and Russia that sank oil prices and pushed dozens of U.S. oil companies toward bankruptcy.
The Saudis and Russians both made key concessions, analysts say, while the Trump administration gave up little—successfully arguing that U.S. energy producers are ramping down on their own.
“We gave up zip, as far as I can tell, and got a historically large cut,” said Bob McNally, who served as an energy adviser to President George W. Bush and is now an analyst at Rapidan Energy Group. “President Trump proved to be master of the deal.”
Sunday’s accord came because Mr. Trump now has “an enormous amount of influence,” said Daniel Yergin, vice chairman of research firm IHS Markit. The U.S. has become such a dominant producer—with Saudi Arabia and Russia next—it has made the global market unmanageable without some participation from the U.S. leader, analysts said.
Saudi Arabia and Russia broke up a three-year alliance to limit the world’s crude supply about a month ago, frustrated that whenever they cut production their U.S. rivals just sold more to fill the gap.
Crude futures plunged, leading some U.S. Energy Department officials to weigh concessions. But officials there and in the Trump White House ultimately decided to hang tough, convinced that the Saudis and Russians couldn’t sustain their strategy in the midst of fallout from the coronavirus pandemic, according to people familiar with the situation.
In early April, Mr. Trump spent large parts of a White House meeting with oil executives talking about tariffs on oil imports to derail the Saudi tactic of flooding the market with cheap oil.
By the following week the Saudis and Russians had revived their 23-nation alliance, known as OPEC+. Under the deal struck Sunday, those oil-producing nations agreed to cut about 10 million gallons of production a day.
Mr. Trump’s deal-making skill along with plummeting demand had become key to negotiations, Energy Secretary Dan Brouillette said in a Sunday night call with reporters.
“Every member of OPEC had an incentive to do this,” Mr. Brouillette said. “At the end of the day the decision was fairly clear: There’s simply going to be a reduction in the oil being produced around the world.”
Mr. Trump celebrated the deal in tweets Monday, saying it could produce even more cuts than what it officially outlined.
There are questions about the deal. If prices at the pump rise later this year, Mr. Trump could face backlash from U.S. consumers and accusations of conspiring with oil-producing countries he himself has called a cartel.
In the near term, a bigger question may be whether the cuts are even enough to address the glut and keep U.S. companies from shrinking and firing workers. Oil prices fell Monday despite the deal.
Jonathan Elkind, who was an Energy Department official in the Obama administration, said that the 10-million-barrel production cut is likely insufficient, with some estimating that global demand could fall more than 25 million barrels a day.
“It feels to me right now there’s a lot of downward pressure on prices still remaining,” he said.
A self-styled deal maker, Mr. Trump has relied on zero-sum tactics with a mixed record of success. His refusal to compromise has led congressional Democrats to stymie all but a handful of major new laws, and trade negotiations with China have yet to produce the fundamental changes Mr. Trump wants Beijing to adopt.
Oil negotiations proved different in part because his negotiating partners had so few alternatives. The U.S. has become both the largest producer and consumer of oil, raising its clout. Saudi and Russian leaders needed a world leader at their level to bring them together, analysts said. The U.S. president has a unique relationship with Mexico that unexpectedly turned out to be important to the Organization of the Petroleum Exporting Countries.
While Trump administration officials refused to guarantee reductions, they did outline in conversations last week expectations that U.S. industry would cut back dramatically on its own. Estimates issued April 7 by an arm of the Energy Department said falling prices will drive private-sector companies to lower oil output over the next several months by nearly 2 million barrels a day, or 13% from first-quarter averages, to year’s end.
Russian and Saudi leaders accepted the U.S. estimates of 3.7 million barrels a day in cuts from Group of 20 countries that don’t have an OPEC alliance, including the U.S. The Russians and Saudis also persuaded the G-20 on Friday to adopt “monitoring response measures” to keep track of those cuts, which Moscow in particular wants as a mechanism to ensure U.S. production doesn’t rebound as Russia cuts back.
The U.S. estimate of 2 million “is so big on its face that even if you got half that from the Americans it would be a major contribution,” said Matthew Reed, an analyst at Washington-based consulting firm Foreign Reports. “Even if you don’t get the big number, you can still have some confidence that the Americans are going to have to cut back anyway.”
Write to Timothy Puko at tim.puko@wsj.com
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