Oil price dives as OPEC, Russia fail to agree on output cut
OPEC and key ally Russia failed to agree Friday on a cut to oil production that would have contained the plunge in the price of crude caused by the new coronavirus outbreak’s massive disruption to world business.
The price of oil fell sharply in international markets as a result, with the international benchmark down 8%, down by a third since the start of the year.
While cheaper oil will translate into more affordable energy for consumers and businesses, it hurts producing countries and companies, Thousands of workers have already laid off in the U.S. oil patch.
The unraveling of the talks in Vienna also underscores the limited power of the cartel to influence world energy markets, unlike its heyday in the 1970s.
The United States recently became the world’s biggest oil producer and keeps on pumping at full capacity.
The 14 OPEC countries had wanted to cut output by 1.5 million barrels a day, or about 1.5% of world production. OPEC countries like Saudi Arabia and Iran say they need non-member allies like Russia to take 500,000 barrels of that cut on themselves.
Russia, however, proved reluctant and OPEC Secretary General Mohammed Barkindo of Nigeria said Friday that the meeting had been adjourned.
“At the end of the day, there was the general painful decision of the joint conference to adjourn the meeting,” Barkindo said. He said informal talks would continue because the situation was urgent.
“The numbers are clear: the demand destruction is real,” he said.
Barkindo said “one or two” non-OPEC countries at the talks Friday had been reluctant to agree to the proposed cuts.
Russia and other nonOPEC countries have been working with the cartel in recent years and agreed on earlier cuts. However, Russia can tolerate low oil prices better than Saudi Arabia can and appears reluctant to slash output of its main revenue-making export.
Saudi Arabia needs $83.60 per barrel to balance its state budget, according to the International Monetary Fund. Russia needs only $42.40 for its own kind of crude oil.
Analysts say OPEC may struggle to keep oil prices from falling further, particularly as the full impact of the virus outbreak on the global economy has yet to be understood.
“There is still too much uncertainty regarding the amount of demand destruction,” analysts at research firm Petromatrix said in a note to investors.