The group’s failure to reach an agreement is a setback for OPEC’s de facto leader, Saudi Arabia, and its promising alliance with Moscow after oil prices took a nosedive following the outbreak of the coronavirus.
As the world’s largest oil importer deals with the coronavirus crisis, Saudi Arabia is pushing for additional cuts of half a million barrels daily, according to reports cited by Al Jazeera. Russia is against it and this time it may have an additional reason for its opposition – additional cuts may simply not work.
The Saudi proposal had broad support, but on Thursday, Russian delegation, led by Russian Energy Minister Alexander Novak, which holds increasing sway within the group rejected it on the grounds that it was too early to assess the impact of the virus on global oil demand.
Moscow’s news agency TASS reported Russian Energy Minister as saying any action this week would be premature.
Saudi Arabia had initially backed output cuts of 800,000 to 1 million barrels a day to balance oil markets. But the gathering collapsed Thursday without an agreement, after the Saudis proposed a compromise cut of 600,000 barrels a day, as a temporary measure in the second quarter.
Now, delegates will return home to consult with their energy ministers and national oil companies. But failure to agree on action is a defeat for OPEC kingpin Saudi Arabia and its new energy minister, Prince Abdulaziz bin Salman.
Previous ministers have been fired for failing to shore up oil prices and the prince has warned people close to him that he could face the same fate, according to OPEC and Saudi officials.
In order to balance its budget and fund expansive programmes aimed at diversifying its economy beyond oil, Saudi Arabia requires oil prices above $60 a barrel.
Brent crude, the global benchmark, was up 0.3 percent at $55.46 a barrel Thursday, as investors showed little reaction to the OPEC alliance’s discord.
Stakeholders, especially oil market analysts and economists, had told BusinessDay that the current development is capable of leading Nigeria’s economy into another recession and shortage of foreign exchange, given that the nation’s foreign reserve has depleted to about $40.95 billion.
In December last year, Nigeria’s crude oil production fell to 1.57 million bpd, a development which is far below budget projection and indeed, OPEC quota for the country.
While the aggregate revenue available to fund the 2020 budget is projected at N8.155 trillion (7 percent or N561.2 billion more than the 2019 budget of N7.59 trillion), nothing less than N7.602 trillion was expected to come from oil revenue.
The coronavirus outbreak in China could cut oil demand by more than 250,000 bpd in the first quarter, Bloomberg quoted analysts and traders as saying. The virus, which originated in the city of Wuhan in central China, has already contributed to a sharp decrease in demand for crude, driving oil prices to bear-market territory on Monday.
Riyadh and Moscow envisioned a muscular alliance when they spearheaded the so-called OPEC-plus production pact in 2016. The two countries grew closer after the killing of Saudi journalist Jamal Khashoggi strained Saudi Arabia’s ties with the US. Riyadh has been discussing arms purchases from Russia and extra investments into the Eurasian nation’s giant gas reserves.
This week’s oil talks ended in a deadlock despite a phone call Monday between Saudi King Salman bin Abdulaziz al Saud and Russian President Vladimir Putin in which both agreed to ensure stability on the global oil market, according to the Kremlin.
