Font Size
Share this article


Print Friendly Version
08 March 2020
ECONOMY

OPEC+ talks to curb oil production ends without agreement

Saudi Arabia wanted to slash production to offset the hit to demand from the coronavirus, but Russia had a different plan

Russia’s budget is more resilient to low prices than its Middle Eastern allies/Bloomberg

by William Mullally

The Organisation of Petroleum Exporting Countries and their allies (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.

Brent crude, the global benchmark, plunged the most in more than a decade after Russia refused to bend to the will of Saudi Arabia, whose high-stakes gamble pushed the group past the breaking point.

Russia’s budget is more resilient to low prices than its Middle Eastern allies. Furthermore, Russia argued that cheap crude will help wipe out competition from US shale and turn investors against companies that are already struggling.

The outcome is bad for energy giants like Exxon Mobil, resource-dependent countries from Latin America to Central Asia and companies like BP trying to reinvent 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.

Energy Minister Alexander Novak said Russian companies are free to ramp up idle capacity from 1 April 2020. When asked if Saudi Aramco could do the same, his Saudi counterpart Prince Abdulaziz bin Salman said, “I will keep you wondering.”

The last time those countries were free from the fetters of OPEC+ output limits, in Q2 2018, they both jacked up output to record highs, adding 1.5 million barrels a day between them.

Roger Diwan, an analyst at IHS Markit, said, “The coronavirus has claimed one victim—the alliance of oil producers, facing a dramatic decline in demand, they are throwing in the towel on market management.”

Senior OPEC officials, from Secretary-General Mohammad Barkindo to UAE Energy Minister Suhail Al Mazrouei, still held out hope that Russia would come back into the fold.

“We are hoping that our friends from Russia need more time to think about it and maybe come back, whenever they want to meet, we can meet in 10 days, in two days, whenever they are ready we can meet,” said Mazrouei.


RELATED STORIES: OPEC+ Saudi Arabia Russia

MOST READ


RECOMMENDED NEWS



BRANDS MAGAZINES LATEST EDITION

OUR BRANDS



CPI Financial was established in Dubai in 1999 to meet the needs of an ever-expanding financial community, offering a comprehensive portfolio of market-leading products and services tailor-made for the banking and financial services sectors.


Subscribe to our News Letter

Subscribe

© 2019 CPI Financial. All rights reserved.

No part of this website may be reproduced or used in any form of advertising without prior permission in writing from the editor.