Crude oil price fell by 5.02 percent on Friday after Russia refused to join the OPEC+ countries in cutting oil production to help stabilize crude oil prices. OPEC+ countries have been trying for the past week to convince Russia to join them in production cuts to support crude oil prices but the Russians appear to be unwilling to cut production largely due to the fact that the oil price decline is not due to a supply shock but a global health crisis.
Bloomberg reports that oil price is now trading far too low to balance the budgets of most OPEC members. Riyadh needs more than $80 a barrel, according to the International Monetary Fund. Russia only requires a price of about $40 a barrel to balance its budget. In Nigeria, the benchmark oil price for 2020 is $57, making the current price level difficult for most OPEC+ countries except Russia.
Brent crude oil price has now tumbled about 27 percent since the start of year after an outbreak of coronavirus in China which claimed the lives of over 3,000 people around the world so far this year and infected almost 100,000 individuals globally. Crude oil prices closed on Friday at around $47, its lowest price in almost 3 years, prompting oil producing countries to explore production cut of up to 1.5 million barrels per day to support oil prices as oil demand gradually softens due to weaker Chinese economic activity.
A 2.1mbpd cut agreed by OPEC+ countries last year which helped stabilize oil prices is due to expire later this month, making an agreement between OPEC+ and Russia critical to ensure that oil supply doesn’t increase significantly at a time when oil prices are rapidly declining.
Ministers from the Organization of Petroleum Exporting Countries told Russia on Thursday that if it doesn’t join them in cutting oil output by another 1.5 million barrels a day to offset the impact of the coronavirus, then the cartel could abandon its reductions altogether. Hours later, the group raised pressure on Moscow again, emerging from an informal meeting at the Saudi delegation’s hotel with a proposal to extend the curbs for even longer than initially suggested.
Although experts say they expect Russia will eventually agree to cut oil production, OPEC+ may have to reach a compromise to cut about 3mbpd rather than the 1.5mbpd currently proposed for oil price to rebound to around $60 amid the coronavirus market rout.
IFEANYI JOHN
