OPEC eyes deeper supply cuts as Russia resists

KUWAIT: A Kuwaiti trader wearing a protective mask follows the market at the Boursa Kuwait stock exchange in Kuwait City yesterday. All of the seven stock exchanges in the GCC which were closed the previous two days for the weekend were hit as oil prices dropped below $50 a barrel. – Photo by Yasser Al-Zayyat

RIYADH: OPEC could agree on deeper oil supply cuts this week, with or without Russia’s support, to halt the slide in crude prices triggered by the global spread of the coronavirus, said two sources familiar with the talks. Moscow is resisting further output curbs, arguing that reduced production by the Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, will not necessarily revive oil demand, the sources said.

Russian President Vladimir Putin yesterday said that current prices are acceptable for his country’s budget and that Russia – a key member of OPEC+ – has sufficient resources to contend with any deterioration in the global economy. “Saudi Arabia wants to hold prices from falling, but Russia is still not agreeing. So the only way might be for OPEC to cut alone, which will not send a good signal to the market,” one of the sources said. “There should be a cut, there is no other option,” another source said, adding that another option might be for OPEC to delay a decision until low oil prices force Moscow to come on board.

Markets rattled
Global oil and stock markets have been rattled by the spread of the coronavirus, which has infected 82,000-plus people globally, with more than 2,700 deaths in China and 57 fatalities in 46 other nations. Brent crude fell to $49.67 a barrel on Friday, having lost more than $15 since January.

OPEC has been discussing cutting oil production by a further 1 million barrels per day (bpd), among other options, as it seeks to stabilize declining oil prices, OPEC and industry sources said on Friday. That is more than an initially proposed cut of 600,000 bpd. The existing OPEC+ pact entails output cuts of 1.7 million bpd under a deal that runs to the end of March.

Saudi Arabia has been holding its output to 400,000 bpd beneath its quota, bringing the total effective OPEC+ cuts to 2.1 million bpd. OPEC and allies are scheduled to meet in Vienna over March 5-6 to seek agreement on production policy. But cutting output without Russia could effectively mean an end to the cooperation between OPEC and Moscow, an outcome that Saudi Arabia and other key OPEC members would not want. Moscow has a history of agreeing to OPEC+ actions only at the last minute after showing initial reluctance.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman last month described as “nonsense” a media report that Riyadh is considering a break from the OPEC+ alliance with Russia. He also expressed confidence that OPEC+ would respond responsibly to the spread of the coronavirus and that Saudi Arabia and Russia would remain engaged on oil policy. The prince has been advocating a swift oil supply cut since the initial outbreak of the virus in January, aware that delays have previously led to costly price collapses, sources familiar with the kingdom’s thinking have told Reuters. Saudi Arabia needs oil prices of about $80 a barrel to balance its state budget while Russia can cope with prices as low as $42.

Meanwhile, President Putin said that Russia can cope with the recent decline in oil prices as the coronavirus has spread internationally but offered a chink of light to OPEC as the producer group pushes for deeper supply cuts. Moscow has been resisting further curbs, arguing that reduced output by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, will not necessarily revive demand, sources said. OPEC+ is due to meet in Vienna this week to decide on production policy when its existing supply pact expires at the end of March.

“I want to stress that for the Russian budget, for our economy, the current oil prices level is acceptable,” Putin told a meeting with Russian energy officials and producers to discuss the coronavirus and its implications. The price of Brent crude slumped to $50.05 on Friday, its lowest since late 2018, on fears that the coronavirus outbreak will trigger oil demand destruction. Russia, which has more than $560 billion in its reserves, envisages in its budget an average Brent crude price of $42.40 a barrel, Putin said.

“Our accumulated reserves, including the National Wealth Fund, are enough for ensuring a stable situation, the fulfilment of all budget and social liabilities, even under a possible deterioration of the global economic situation,” Putin said. He added, however, that this does not set aside the need for action, “including together with foreign partners”. Putin also highlighted the difficulty in forecasting moves in oil prices and acknowledged that Russia needs to be ready for various scenarios.

Three Russian nationals are receiving treatment in Russia after contracting the virus on a cruise ship in Japan, authorities have said. Two Chinese nationals were taken to hospital in Russia with the virus but have since recovered. Last week the ruble slid beyond 67 per dollar to its weakest since early 2019 and the stock market dropped, pricing in a global sell-off and another increase in tensions with Turkey over Syria. – Reuters

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