Russia keeps door open for OPEC amid threats to raise output

Russia stepped up its price war with Saudi Arabia by warning it can raise oil production, while also saying further cooperation with OPEC is possible. U.S. shale producers on last Monday rushed to deepen spending cuts and reduce future production. Standard Chartered on Monday cut its 2020 and 2021 oil price forecast, saying the price war sparked by the collapse of a deal.

Russia’s rouble crashed to its weakest level since early 2016 on Monday. After the collapse of OPEC+ talks last week, Russia could increase output by as much as 500,000 barrels a day in the near future. OPEC members were bleeding over half a billion dollars a day in lost revenue, according to Reuters calculations. Russia’s Energy Ministry will meet with the country’s oil companies on Wednesday.

His statement came just minutes after Saudi Aramco escalated the battle for market share by pledging record oil shipments in April. Oil prices jumped by around 8% on Tuesday a day after the biggest rout in nearly 30 years as investors eyed. Saudi Aramco will raise its crude supply, which includes oil to its customers inside the kingdom.

The OPEC+ union, forged by Russia and Saudi Arabia in 2016 to support oil prices, collapsed last week when Novak refused. OPEC’s decision to pump full bore into a global market hit by shrinking demand due to the coronavirus outbreak. The bank slashed its average 2020 Brent forecast to $35 per barrel from $64, and its average 2021 Brent forecast to $44 per barrel from $67 earlier.

The rouble slumped to 74 versus the dollar on the interbank market as of 0914 GMT after falling to 74.95, a level last seen in late February 2016. It’s strong-armed by the Saudis into accepting additional output cuts of 1.5 million barrels a day. The meeting was convened following the collapse of talks with OPEC and other oil producers last week.

Brent crude futures were up $2.84, around 8%, to $37.20 a barrel by 1228 GMT, after hitting a session high of $38.22 a barrel. The failure to agree on further action triggered a 25% plunge in oil prices on Monday towards $30 per barrel, a four-year low. The company has agreed with its customers to provide those volumes starting April 1.

Nasser said in a statement, “April’s crude supply will be “300,000 barrels per day over the companys maximum sustained capacity of 12 million bpd”.

The failure of the talks has prompted Saudi Arabia to slash its crude prices, targeting potential buyers of Russian oil in Asia. West Texas Intermediate (WTI) crude gained $2.53, or around 8%, to $33.66 a barrel, after hitting a high of $34.60. Against the euro, the rouble was at 84.17, having briefly hit 85.74, its weakest since February 2016.

Europe and the U.S. In response, oil slumped by the most in three decades on last Monday. Russian Energy Minister Alexander Novak has said curbs on output should be lifted from April 1 once the current deal between OPEC and other producers. Standard Chartered lowered its 2020 outlook to $32 per barrel from $59, and its 2021 forecast to $41 per barrel from $63.

Despite this escalating battle for market share, Novak said Russia is open to further cooperation with Organization of Petroleum Exporting Countries and its allies. The rouble ended on the Moscow Exchange on Friday at 68.57 against the dollar and 77.51 versus the euro. The meeting may provoke debate about whether to return to cooperation with OPEC.

If needed, company have various tools, including reducing and increasing production, and new agreements can be reached. Both benchmarks plunged 25% on Monday, dropping to their lowest levels since February 2016. Supply to the market from production may differ depending on the movement of barrels in and out of storage.

OPEC+ has meetings scheduled for May or June, when the union may evaluate the market situation once again. For the last three years, OPEC and its allies, chiefly Russia, have cut supply to support prices. President Vladimir Putin would still have the last word on how Russia decides to proceed. The unprecedented hike in crude supply by Riyadh follows the collapse of talks between OPEC.

In the meantime, Russia’s oil industry is regrouping for a potential output hike from April 1, when the current OPEC+ deal expires. OPEC members lost more than $500 million in revenue, according to Reuters calculations. Trading volumes in the front-month for both contracts hit record highs in the previous session after three years of cooperation.

The nation’s producers have the capacity to raise the output by 200,000 to 300,000 barrels a day in the short term. Shares in Russian companies also fell in London as the Moscow Stock Exchange was closed for a long weekend. Saudi, the world’s biggest oil exporter, escalated tensions with plans to supply 12.3 million barrels per day (bpd) in April.

Oil rebounded on Tuesday after Monday’s historic crash. Three years of cooperation among OPEC+ producers ended in acrimony on Friday. Brent crude was trading 7.5% higher at $36.93 a barrel at 10:26 a.m. in London. Moscow refused to support deeper production cuts to support prices hit by the coronavirus outbreak.

A three-year pact between OPEC and Russia fell apart on Friday after Moscow refused to support deeper oil cuts. The losses are a lot more pronounced when compared with the high of $71.75 a barrel that Brent hit in January. April’s crude supply will be “300,000 barrels per day over the companys maximum sustained capacity of 12 million bpd.

Russia produced 11.289 million barrels a day of crude oil and condensate in February. Russian oil minister Alexander Novak said he did not rule out joint measures with OPEC to stabilise the market. OPEC responded by removing all limits on its own output. Rosneft, has been the most vociferous opponent of the deal.

Novak says in state-run Rossiya 24 TV channel,“I want to say that the door isn’t closed”.

Raising the level by another half a million barrels would bring the nation’s output to an all-time high. OPEC had been pushing for expanding the existing cuts with its allies, known as OPEC+, by an additional 1.5 million barrels. Saudi Arabia’s energy minister told Reuters he did not see a need to hold an OPEC+ meeting.

The United States is now the largest oil producer in the world, pumping out nearly 13 million barrels per day. OPEC members Nigeria and Algeria on Monday said the breakdown of the deal will be painful for producers. Rosneft, headed by Igor Sechin, a close ally of Putin, and its managers were targeted by sanctions imposed by the United States.

Russia will not be able to match the production hikes planned by the Saudi kingdom within the next two months. A $10 a barrel decline in oil prices lowers fiscal revenues by 2-4% of GDP. Price wars and pandemics are nothing new to the commodity markets. OPEC+ has been effectively cutting production by 2.1 million bpd led by Saudi Arabia.

Saudi Arabian Oil Co. on Tuesday pledged to raise its April production above the maximum sustainable capacity to a record 12.3 million barrels a day. Global depositary receipts (GDRs) in oil giant Rosneft were down 20.4%, GDRs of Russia’s No.2 oil producer Lukoil fell 18.5%. Russia’s second-largest oil producer Lukoil, have been positive towards cooperation with OPEC.

Crude was also supported by hopes for a settlement to the price war and potential U.S. output cuts. The falling rouble usually fuels concerns about inflation as rises in the dollar. U.S. shale producers rushed to deepen spending cuts and could reduce production after OPEC’s decision. It’s a move to flood the market with crude and put additional pressure on Russia.

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