OPEC managed to agree on a massive new production cut—1.5 million bpd—on Thursday, but the deal hinges rather shakily on Russia’s buy-in to the cuts, two Reuters sources said.
And so far, the market is none too happy about the developments.
Yesterday, Russian Energy Minister Alexander Novak left the meeting after three hours of talk, without agreeing to anything. Novak is expected back at the negotiating table on Friday. Then on Thursday, Russia’s Finance Minister Anton Siluanov said that Moscow was prepared for a drop in oil prices should OPEC+ fail to reach a deal.
Despite the 1.5-million bpd tentative agreement by OPEC ministers, WTI and Brent crude slid on Thursday, with WTI falling 0.47% to $46.56 per barrel, while Brent crude was trading down 0.68% to $50.78.
The Iranian Oil Minister Bijan Zanganeh confirmed that OPEC had agreed on an extra cut of 1.5 million bpd, and that Iran was still exempt from any cuts. According to Zanganeh, OPEC wanted non-OPEC states, including Russia, to shoulder 500,000 bpd of that 1.5 million bpd.
As the largest non-OPEC member of the group, Russia would likely be tasked with cutting most of that 500,000 bpd, and so far Russia’s motive to actively pursue higher oil prices is certainly less than its Middle Eastern peers, indicating on multiple occasions that it is positioned better to withstand these lower oil prices, while Russian oil companies have signaled that they are none too happy about further disruptions to their oil production plans.
The OPEC meeting of ministers from OPEC, Russia, and other non-OPEC producers ended Wednesday without agreeing on a solution to the coronavirus problem, with Russia holding out, Reuters reported yesterday afternoon, sewing the first seeds of doubt that the group would be able to get a bigger cut deal done after all.
By Julianne Geiger for Oilprice.com
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