OPEC+ fails to agree on massive supply cut, sending crude prices to 2017 lows

  • Oil prices slipped more than 6% Friday afternoon after Reuters reported a senior high-level Russian source said Moscow would not be prepared to approve steeper oil cuts.
  • It comes after OPEC on Thursday recommended additional production cuts of 1.5 million barrels per day (bpd) from the beginning of next month until the end of the year. 
  • “It is truly a go big or go home moment for this organization,” Helima Croft, head of global commodities strategy at RBC, told CNBC’s Dan Murphy on Friday.

OPEC and non-OPEC allies have reportedly failed to agree on how much production to cut amid the coronavirus outbreak, with Russia reportedly refusing to give the green light to the deepest supply cuts since the global financial crisis.

Oil prices slipped Friday afternoon after Reuters reported a senior high-level Russian source said Moscow would not be prepared to approve a further reduction in production.

Instead, Russia favored an extension to the current level of cuts, the source said. CNBC was not able to independently verify this report. Later on Friday, Reuters also reported that OPEC and its allies had even failed to agree on rolling over existing cuts, further weighing on crude prices.

International benchmark Brent crude traded at $46.94 Friday afternoon, down over 6%, while U.S. West Texas Intermediate (WTI) stood at $43.03, around 6.14% lower.

Brent futures have fallen more than 31% since climbing to an early January peak, with WTI down almost one-third over the same period.

On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day (bpd) from the beginning of next month until the end of the year. 

The 14-member group had scheduled a meeting on June 9 to review the policy.

The proposal was conditional on support from non-OPEC producers, including Russia. OPEC cautioned that the deal could only be applied on a pro-rata basis with core members set to cut 1 million bpd and non-OPEC partners expected to cut 500,000 bpd.

OPEC and non-OPEC producers, sometimes referred to as OPEC+, were expected to meet in Vienna, Austria on Friday to discuss this proposal, but talks have been delayed.

“It is truly a go big or go home moment for this organization,” Helima Croft, head of global commodities strategy at RBC, told CNBC’s Dan Murphy on Friday.

“If Russia says no today, there are real questions about the viability of the OPEC+ arrangement.”

Once again, the disconnect between OPEC kingpin Saudi Arabia and non-OPEC leader Russia is testing the strength of their three-year energy alliance.

RBC’s Croft said she believes it is in both the economic and political interests of Moscow’s to stay in the organization, “but a lot is up in the air right now.”

“We have no reason to doubt the continued commitment of the Russian Federation to this partnership,” OPEC Secretary General Mohammed Barkindo told reporters Thursday evening.

“We have repeatedly heard from the highest level of government in the Russian Federation of the commitment of the government to this partnership in the declaration of cooperation,” he added.

Speaking to reporters shortly after OPEC recommended taking 1.5 million bpd off the market for the remainder of the year, Iranian Oil Minister Bijan Zanganeh conceded the group had “no plan B” if Russia or any other non-OPEC members refused to accept the deal.

If Russia and other non-OPEC producers approve the group’s recommendation, total output cuts would amount to 3.6 million bpd — approximately 3.6% of worldwide production.

The last time OPEC+ reduced supply on such a scale was in 2008 when it took 4.2 million bpd off the market to support oil prices in the wake of the financial crisis.

Source: https://www.cnbc.com/2020/03/06/opec-meeting-coronavirus-weighs-on-oil-demand-as-oil-prices-fall.html

You may like

In the news
Load More