Russia could not reach deal with OPEC amid coronavirus outbrake
Russia could not reach a deal with OPEC + partners at the level of the technical committee on whether it is necessary to further reduce oil production due to coronavirus. OPEC insists that due to the spread of the Chinese virus, oil demand may fall, which will lead to an oversupply. Talks between officials from OPEC and its allies spilled into an unprecedented third day as Saudi Arabia and Russia remained split over their response to China’s coronavirus, Bloomberg writes in the article OPEC+ Extends Virus Crisis Talks as Russia Resists Oil Cuts.
Delegates gathered again in Vienna on Thursday after two days of meetings weren’t enough to shift Russian resistance to deeper production cuts. Saudi Arabia, engaging in capital-to-capital diplomacy, has been pushing for the cartel to reduce output as the deadly epidemic squeezes China’s economy and its demand for oil.
The price of crude has plunged in recent weeks on expectations that the epidemic will make a sizable dent in global energy consumption as China curbs imports of crude and liquefied natural gas. As talks between the Organization of Petroleum Exporting Countries and its allies dragged on in the Austrian capital, traders voiced optimism that the cartel will eventually summon ministers for an emergency meeting that would take action to avert a surplus. Crude futures rose on Thursday for a second day.
“An emergency meeting is clearly on the table and I would not rule it out,” said Bob McNally of Washington-based Rapidan Energy Advisers LLC. “But it’s an uphill battle for proponents, especially given Russia’s stout opposition and crude’s relief rally.”
Russia would be willing to extend the current production cuts, which were agreed in December and due to expire in March, but doesn’t want additional measures, according to one delegate. It was the country’s reluctance that pushed the meeting of OPEC+ experts into a third day, he said. The Kremlin’s budget is more resilient to low oil prices than Saudi Arabia’s, and the standoff between the two producers has become a feature of negotiations, albeit one that typically ends in compromise.
Russian President Vladimir Putin spoke to Saudi King Salman bin Abdulaziz by phone earlier this week and doesn’t currently have plans for another call, Kremlin spokesman Dmitry Peskov told reporters on conference call on Thursday. Uncertainty over the coronavirus outbreak’s duration and severity is making it harder for the cartel to make a decision. Estimates of how much demand will be wiped out in the coming months vary widely, with OPEC’s internal analysis predicting a modest impact but outside estimates showing the biggest hit to consumption since the 2008-2009 financial crisis. Two delegates said they needed more time to review their report on the possible impact of the virus. Officials are looking at a range of scenarios and their impact.
“If it were intractable they would have left by now,” said Helima Croft, an analyst at RBC Capital Markets. “It’s a quest for consensus still. But certainly it shows that this is not easy.”
Even if the technocrats that make up the group’s Joint Technical Committee reach a consensus on the impact of the virus and make a recommendation to the ministers, the OPEC+ group would need then to agree on a date for an early meeting, and the ministers themselves would need further face-to-face talks in Vienna before any final decision.