OPEC output cut deal falls apart as Russia resists, sending oil prices into tailspin
Oil plunges 9% as the development revives fears of a 2014 price crash
Oil plunges 9% as the development revives fears of a 2014 price crash. PHOTO: REUTERS
VIENNA:
A three-year honeymoon between OPEC and Russia descended into acrimony on Friday after Moscow refused to support deeper oil cuts to cope with the outbreak of coronavirus and OPEC responded by removing all limits on its own production.
Oil prices plunged 9% as the development revived fears of a 2014 price crash, when Saudi Arabia and Russia fought for market share with US shale oil producers, which have never participated in output limiting pacts.
Brent has lost a third of its value this year, tumbling below $46 a barrel, putting oil-dependent nations and many oil firms under heavy strain as the global economy reels due to the virus, which has dampened business activity and stopped people traveling.
The failure may have more far reaching implications as OPEC's de facto leader Saudi Arabia and Russia have used oil talks to build a much broader political partnership in the last few years after effectively supporting opposite sides in the Syrian war.
"Russia's refusal to support emergency supply cuts would effectively and fatally undermine OPEC+'s ability to play the role of oil price stabilising swing producer," said Bob McNally, founder of Rapidan Energy Group.
"It will gravely rupture the budding Russian-Saudi financial and political rapprochement. The result will be higher oil price volatility and geopolitical volatility," he said.
OPEC sources told Reuters that Russia and Saudi Arabia, the biggest crude producer in the Organisation of the Petroleum Exporting Countries (OPEC), had failed to find a compromise despite several rounds of bilateral talks this week in Vienna.
As a result, the existing deal for output cuts will expire in March, so OPEC members and non-OPEC producers can in theory pump at will in an already oversupplied market, sources said.
OPEC ministers had said on Thursday that the coronavirus outbreak created an "unprecedented situation" that demanded action. They proposed far bigger output cuts than had been flagged prior the meeting, even though Moscow had long indicated its reluctance to support further production curbs.
Forecasts for 2020 demand growth have been slashed but Moscow has long argued it was too early to assess the impact and sources said Novak delivered the same message on Friday.
OPEC ministers said on Thursday they backed an additional 1.5 million barrels per day (bpd) of oil cuts until the end of 2020, equal to around 1.5% of global demand.
They also called for extending existing OPEC+ cuts of 2.1 million bpd, meaning the proposed combined total of the cuts envisaged would have been 3.6 million bpd or about 3.6% of global supplies.
But they made the proposal conditional on Russia and other non-OPEC producers backing the curbs.
The Kremlin said on Friday President Vladimir Putin had no plans to talk to the Saudi leadership, an announcement that dashed hopes that a deal could be salvaged at the very top.
Inside the OPEC headquarters, consultations continued for more than seven hours.
A three-year honeymoon between OPEC and Russia descended into acrimony on Friday after Moscow refused to support deeper oil cuts to cope with the outbreak of coronavirus and OPEC responded by removing all limits on its own production.
Oil prices plunged 9% as the development revived fears of a 2014 price crash, when Saudi Arabia and Russia fought for market share with US shale oil producers, which have never participated in output limiting pacts.
Brent has lost a third of its value this year, tumbling below $46 a barrel, putting oil-dependent nations and many oil firms under heavy strain as the global economy reels due to the virus, which has dampened business activity and stopped people traveling.
The failure may have more far reaching implications as OPEC's de facto leader Saudi Arabia and Russia have used oil talks to build a much broader political partnership in the last few years after effectively supporting opposite sides in the Syrian war.
"Russia's refusal to support emergency supply cuts would effectively and fatally undermine OPEC+'s ability to play the role of oil price stabilising swing producer," said Bob McNally, founder of Rapidan Energy Group.
"It will gravely rupture the budding Russian-Saudi financial and political rapprochement. The result will be higher oil price volatility and geopolitical volatility," he said.
OPEC sources told Reuters that Russia and Saudi Arabia, the biggest crude producer in the Organisation of the Petroleum Exporting Countries (OPEC), had failed to find a compromise despite several rounds of bilateral talks this week in Vienna.
As a result, the existing deal for output cuts will expire in March, so OPEC members and non-OPEC producers can in theory pump at will in an already oversupplied market, sources said.
OPEC ministers had said on Thursday that the coronavirus outbreak created an "unprecedented situation" that demanded action. They proposed far bigger output cuts than had been flagged prior the meeting, even though Moscow had long indicated its reluctance to support further production curbs.
Forecasts for 2020 demand growth have been slashed but Moscow has long argued it was too early to assess the impact and sources said Novak delivered the same message on Friday.
OPEC ministers said on Thursday they backed an additional 1.5 million barrels per day (bpd) of oil cuts until the end of 2020, equal to around 1.5% of global demand.
They also called for extending existing OPEC+ cuts of 2.1 million bpd, meaning the proposed combined total of the cuts envisaged would have been 3.6 million bpd or about 3.6% of global supplies.
But they made the proposal conditional on Russia and other non-OPEC producers backing the curbs.
The Kremlin said on Friday President Vladimir Putin had no plans to talk to the Saudi leadership, an announcement that dashed hopes that a deal could be salvaged at the very top.
Inside the OPEC headquarters, consultations continued for more than seven hours.