OPEC+ talks fail, blowing hole in Russia-saudi pact
Crude drops 9% as Moscow goes its own way
VIENNA/LONDON • OPEC+ talks ended in dramatic failure, auguring the end of a diplomatic alliance between Saudi Arabia and Russia that has underpinned crude prices and changed the balance of power in the Middle East.
Oil fell more than nine per cent after Russia refused to bend to the will of Saudi Arabia, whose high- stakes gamble pushed the group past breaking point. Riyadh wanted to slash production to offset the hit to demand from the coronavirus. But Moscow had a different idea.
The Kremlin’s budget is more resilient to low prices than its Middle Eastern allies. Russia also argued that cheap crude will help wipe out competition from U. S. shale and turn investors against firms that are already struggling, said a person familiar with the discussions.
The outcome is bad for energy giants like Exxon Mobil Corp., resource-dependent countries from Latin America to Central Asia, and companies like BP PLC trying to re-invent themselves as greener producers. Low prices will help some economies though, as a stimulus in the face of the raging virus.
The breakdown is the biggest crisis since Saudi Arabia, Russia and more than 20 other nations created the OPEC+ alliance in 2016. The group, controlling more than half of the world’s oil production, has underpinned prices and reshaped the geopolitics of the Middle East — increasing President Vladimir Putin’s clout in the region. But it’s come under increasing strain over the past year.
The oil market now faces double jeopardy. It won’t just miss out on the 1.5 million barrel- a- day output cut Saudi Arabia was pushing, but the group’s existing 2.1 million- barrel- a- day supply reduction won’t continue beyond the end of this month.
Oil traders will now be looking for signs of whether Saudi Arabia, Russia or any of the other OPEC+ nations — unshackled from the cartel’s restrictions and with budget holes to fill — could actually increase production.
Energy Minister Alexander Novak said Russian companies are free to ramp up idle capacity from April 1. When asked if Aramco could do the same, his Saudi counterpart Prince Abdulaziz bin Salman told reporters: “I’ll keep you wondering.”
The last time those countries were free from OPEC+ output limits, in the second half of 2018, they both jacked up output to record highs, adding 1.5 million barrels a day between them.
“The coronavirus has claimed one victim: the alliance of oil producers,” said Roger Diwan, an analyst at consultant IHS Markit Ltd. and a veteran OPEC watcher. “Facing a dramatic decline in demand, they are throwing in the towel on market management. We are likely to see the lowest oil prices of the last 20 years in the next quarter.”
After days of haggling, the alliance had little to show for its efforts. The scheduled press briefing was cancelled. A terse statement that didn’t set a date for another rendezvous — and from which two numbered bullet points had been excised — was drafted but never published.
The OPEC+ meeting in the diary for June was unlikely to go ahead, a delegate said, and the dates were removed from the cartel’s website. Another person said Russia was still willing to join those talks.
OPEC officials, from Secretary- General Mohammad Barkindo to United Arab Emirates Energy Minsiter Suhail Al Mazrouei, still held out hope Russia would come back to the fold.
“We are hoping that our friends from Russia need more time to think about it and maybe come back,” Mazrouei said. “Whenever they want to meet, we can meet.”