OPEC+ meeting delayed, oil rally tempered

Oil prices surged on Friday on hopes that U.S, Russia and Saudi Arabia would agree on productions cuts but an exchange of harsh remarks between Moscow and Riyadh resulted in a postponed OPEC+ meeting aimed at ending the oil price war.

OPEC+, an alliance including Russia and The Organization of Petroleum Exporting Countries, was set to meet virtually on Monday to discuss a new deal to end the price war and address a drop in demand from COVID-19-triggered lockdowns, but this has been tentatively delayed to April 9 instead, Bloomberg and Reuters reported, citing sources.

The delay comes after Russia and Saudi Arabia blamed each other for the drop in oil prices, which last week plummeted to their lowest in 18 years, driven by a slump in oil demand and a ballooning supply glut.

A sharp drop in oil prices, which resulted in spending cuts by oil producers across the world and some U.S. shale producers seeking government help, led U.S. President Donald Trump to discuss oil output with Russian President Vladimir Putin.

In a Tweet on April 2, he said the US had managed to broker a a new extraordinary meeting for oil-producing nations, where Russia and Saudi Arabia will be negotiating on 6 April 2020 output cuts of at least 10 million barrels per day (bpd).

Although the market was skeptical about the new deal, oil recovered from last week’s lows of $20 per barrel with Brent settling at $34.11 on Friday.

In a meeting with government officials and oil executives, Putin acknowledged the need for a deal on Friday, saying Russia was willing to contribute to cuts, which could be 1 million bpd, if U.S. and others joined, according to Bloomberg, but he also blamed Saudi Arabia for the oil price crash.

“It was the pullout by our partners from Saudi Arabia from the OPEC+ deal, their increase in production and their announcement that they were even ready to give discounts on oil” that contributed to the crash, along with the coronavirus-driven drop in demand, he said.

“This was apparently linked to efforts by our partners from Saudi Arabia to eliminate competitors who produce so-called shale oil,” Putin continued. “To do that, the price needs to be below $40 a barrel. And they succeeded in that. But we don’t need that, we never set such a goal.”

In a statement early on Saturday, the Saudi Foreign Minister Prince Faisal bin Farhan said comments by Putin blaming Riyadh for the end of the OPEC+ pact between the two countries in March were “fully devoid of truth.”

“Russia was the one that refused the agreement” in early March, the Saudi foreign ministry said. “The kingdom and 22 other countries were trying to to persuade Russia to make further cuts and extend the agreement.”

Prince Abdulaziz, the energy minister and half-brother of Crown Prince Mohamed bin Salman, echoed these comments in a statement on Saturday: “The Russian Minister of Energy was first to declare to the media that all the participating countries are absolved of their commitments,” he said. “This led to the decision by countries to raise their production in order to offset lower prices and compensate for their loss of returns.”

Saudi Arabia was shouldering most of the burden, producing more than 2 million barrels a day below capacity, while Russia had made a more nominal contribution.

 The Saudis, who have ramped up production to a record 12 million barrels a day in the past month and massively discounted the price of their oil, have insisted a new agreement must involve significant contributions from all OPEC+ nations and major producers outside the coalition, including the U.S. and Canada.

“The deal would help balance the demand shortfall and bring prices back to more profitable levels and help avoid production shut-ins,” Rystad Energy said in a note. “The sticking point is how much each producer is willing to cut. But, in case of another deadlock between Russia and Saudi Arabia, which of the two oil majors is better positioned to withstand an extended oil price war with fewer losses?”

Rystad said it’s research shows that Saudi Arabia will suffer a bigger hit than Russia in all five financial criteria it examined, which include the impact on oil and gas revenues, fiscal breakeven price, fiscal deficit and foreign currency reserves, budget deficits and domestic policy.