LONDON (Reuters Breakingviews) - Saudi Arabia and Russia have exceeded low expectations. After spending the last month waging an increasingly damaging price war, the world’s biggest oil producers apart from the United States on Thursday looked to have sketched out a deal to tackle an unprecedented supply glut in the global oil market. It may still not be enough to stop the rot.

Oil producers’ main headache is that demand in what is usually a 100 million barrel a day market may have slumped by as much as 30% because of Covid-19. With storage of little more than 850 million barrels, according to consultant Rystad Energy, space to store the excess black gold could run out in less than a month. Oil prices might then drop from their current $32 a barrel, below the $10 at which many producers stop being able to cover their costs, before markets rebalance.

If Riyadh and Moscow and their various allies cobble together a cut of 10 million barrels per day, as sources suggested to Reuters they might, that would be an achievement. It all hangs on whether the group known as OPEC+, which combines the Organization of the Petroleum Exporting Countries and some other producers, has the means to do what it says. The inability of members to coordinate effectively partly caused a less ambitious output cut to implode in March.

The other problem is that even those 10 million barrels per day may only be a half or a third of what’s required. True, the Group of 20 nations convening for a call on Friday might step up too, but they face the same collective-action issue as OPEC+. And even if everyone agreed to cut 20 million barrels from their daily output for three months, that wouldn’t be sufficient if the demand slump is bigger or extends past June.

Then there are the U.S. producers. Low prices threaten to bankrupt large swathes of high-cost American shale drillers, yet many don’t want to cut output. On Wednesday Exxon Mobil sent a letter to Texas regulators opposing supply cuts in the Permian Basin. Without U.S. cooperation, draining the epic glut will be harder. Saudi and Russia may merely be showing they want to help, while knowing a global effort is bound to fail.

CONTEXT NEWS

- The Organization of the Petroleum Exporting Countries and allies including Russia agreed to cut the equivalent of 10% off daily global oil supplies in May and June to support prices, three sources told Reuters.

- The April 9 talks among OPEC members and some of their allies, who together make up a group known as OPEC+, were to be followed on April 10 by a call between energy ministers from the Group of 20 major economies, also hosted by Saudi Arabia. These could cut another 5% off daily global supply.

- The oil regulator in Texas, the largest producer among U.S. states with output of about 5 million bpd, meets on April 14 to discuss possible curbs.

- The Brent oil benchmark hit an 18-year low in March and was trading at $32 a barrel as of 1923 GMT on April 9.

(Editing by Lauren Silva Laughlin and Amanda Gomez)

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