Saudis may yet get OPEC+ deal from recalcitrant Russia as crisis grows

Saudi Arabia has so far been thwarted by Russia in its push to shore up oil markets against the coronavirus. Oil prices rose on last Friday after Russia said it backs a recommendation for the OPEC. But when they meet next week, the humbled kingdom may yet clinch victory. Moscow has so far resisted further cuts to oil output.

Russian President Vladimir Putin said on Sunday that current oil prices were acceptable despite their steep decline last week. Ever since it became clear the outbreak was savaging energy demand in China and oil prices everywhere Riyadh has been pushing for swift production cuts.

OPEC cuts production by 600,000 barrels a day, oil prices could remain weak until April. Some OPEC members mull additional 1 mln bpd output cut. Russia, the most important partner in the producers’ coalition, rebuffed those entreaties.

Brent crude futures rose 32 cents, or 0.6%, to $55.25 a barrel by 0104, after falling 0.6% on last Thursday. A lot of inventory build up right now needs to be absorbed in April. Vladimir Putin has played since forging an alliance with the Saudis three years ago.

Central banks expected to cut interest rates, support markets. OPEC proposing deeper cuts when existing pact expires. OPEC cuts production by 600,000 barrels a day, oil prices could remain weak until April. The fact is that Russia has a budget that can be balanced at less than $50 a barrel, and the Saudis don’t.

Ed Morse, head of commodities research says “They’re sitting in very different places, clearly, Putin has an advantage”.

Russian budget envisages average oil prices of $42.40. The Organization of the Petroleum Exporting Countries, Russia and other producers, known as OPEC+. That gives Moscow the upper hand when the countries sit down to debate a joint policy on March 5 to 6. But while slumping prices put the kingdom.

Energy minister under tremendous pressure, growing signs that the virus imperils the global economy may ultimately work in Riyadh’s favor. It’s because inventories are rising amid lower oil demand due to the coronavirus outbreak. It’s six weeks since the Saudis first sounded out the Kremlin about an emergency meeting of the Organization of Petroleum Exporting Countries.

Oil prices were just starting to buckle as the effects of the coronavirus on China became clear. Several key OPEC members are leaning towards a bigger than previously expected oil output cut. Kingdom believed the group needed to urgently slash output.

Its proposals were met with skepticism. OPEC+ had just announced a new round of supply cutbacks in December. However, company also said it was difficult to forecast future moves in oil prices and Russia needs to be ready for various scenarios.

Moscow really have the appetite to cut again, especially as the impact of the epidemic was unclear. Moscow has been resisting further curbs, arguing that reduced output by the Organization of the Petroleum Exporting Countries (OPEC). The price of Brent crude slumped to $50.05 on last Friday.

After shrugging off repeated requests from the Saudis, Putin finally agreed to speak with King Salman bin Abdulaziz on the phone on Feb. 3. West Texas Intermediate (WTI) crude futures were up 26 cent. There was no agreement for an emergency meeting, but the next day OPEC+ convened an ad-hoc session.

Their talks spilled into a third, unscheduled day as Russia’s representative refused to ratify any proposals. International benchmark Brent crude futures were at $52.81 a barrel. The committee finally recommended 600,000 barrels a day of new output cuts.

Brent crude hits lowest since July 2017 before rebounding. It deepened an existing OPEC+ cutback of 2 million barrels a day by almost a third. Brent crude was at $51.91 a barrel, up $1.71 or 3.4%, by 0925 GMT, having earlier hit its lowest since July 2017 at $48.40.

Russian Energy Minister Alexander Novak said he would respond to the proposal within a few days. A panel advising the Organization of Petroleum Exporting Countries (OPEC). OPEC waiting for more than a week. When the Kremlin at last made a statement, it disclosed only that it remained undecided.

By mid-February, any hopes for an urgent cut had evaporated. West Texas Intermediate crude hit a 14-month low of $43.32 before recovering to $46.15, up $1.39, or 3.1%. A WhatsApp messaging group set up by delegates to coordinate logistics for an emergency meeting was dissolved as soon as it started.

Mohammad Darwazah, an analyst says , “Russia, per usual, played a cautious game that left both the Saudis and the market hanging”.

OPEC’s Vienna-based secretariat duly distributed invites for a conference on the originally scheduled dates of March 5-6. Oil prices have fallen by more than a fifth since the outbreak of the virus in the city of Wuhan. The Saudis accepted defeat, but their alarm about the oil market was still real.

As the crisis unfolded it became clear that demand in China, the world’s biggest oil importer, had slumped by about 20%, tumbling by 3 million barrels a day. OPEC+ is due to meet in Vienna this week to decide on production policy when its existing supply pact expires.

Global consumption could fall this year for the first time since the financial crash a decade ago, according to consultant FGE. Slumping oil prices threaten both the kingdom’s ability to fund generous social spending, and ambitious plans by the heir to the throne.

Several key members of Saudi Arabia-led OPEC are leaning towards a bigger than previously expected output cut. As a result, he is exerting immense pressure on his half-brother, Prince Abdulaziz bin Salman, appointed as energy minister a mere five months ago.

His predecessor, Khalid Al-Falih, was dismissed after just three years in the job. Russia has yet to make clear its stance on proposals for further cuts. At a closed-door meeting in Riyadh last week, Prince Abdulaziz was frank about the urgency of the situation, equating the oil market to a house on fire.

In such crises, the only option is to send for the fire brigade, he said, according to people who attended the event. Equities underwent their biggest rout since the 2008 financial crisis last week although European. Events of the past week have vindicated that position, with crude prices plunging the most since 2011 as the virus spread across the globe.

Crude slumped below $50 a barrel in London on Friday, and could sink to less than $30 if OPEC+ doesn’t act, Standard Chartered Plc predicted. OPEC+ has proved to be an effective instrument to ensure long-term stability on global energy market.

Though they lost the opening exchange, the Saudis may yet prevail at the talks in Vienna and persuade Moscow to join them in making additional supply cuts. Everybody is afraid to miss the rebound in oil, metals and equities. The coalition is making a renewed push to reach an agreement.

Prince Abdulaziz, a veteran petroleum diplomat well-versed in rescuing deals that seemed impossible, isn’t giving up. The price of Brent crude slumped to $50.05 on Friday. Each time OPEC+ debates new output restraints, Russia typically shows resistance, often pointing to pressure from companies like Rosneft PJSC.

It fully controlled by the state and want to pursue expansion projects. Russia has more than $560 billion in its reserves. But once the right terms are offered, a compromise is usually reached. The scale of losses last week led financial markets to price in policy responses from the U.S.

The Saudis may have lost the battle for an early emergency meeting. The world’s top energy consumer, dragged on oil prices earlier in the session. Putin asked participants at the meeting for their views on further possible actions. But it suspect that they will be able to win the war for a deeper cut.

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