Oil prices tumbled on Friday as OPEC and its Russia-led non-OPEC allies failed to agree on deeper cuts, Bloomberg and Reuters report.
OPEC failed to agree on a deal, two OPEC sources told Reuters, while Bloomberg’s Jessica Summers tweeted that “OPEC talks with allies end without a deal.”
The OPEC Secretariat moments later Tweeted that the formal OPEC meeting had just begun, confusing markets as to what had actually transpired.
At 9:20 a.m. EST on Friday, both WTI Crude and Brent Crude prices were tumbling by more than 7 percent, after the coronavirus outbreak unraveled the OPEC+ coalition that had tried to support and stabilize oil prices since the beginning of 2017.
On Friday, Russia continued to refuse to back any deeper cuts from the OPEC+ coalition, as proposed by OPEC on Thursday.
Yesterday, OPEC ministers met and recommended that the OPEC+ partners extend the current cuts through the end of 2020 and deepen those cuts by 1.5 million bpd in Q2 in response to the slump in demand due to the coronavirus outbreak.
Later on Thursday, OPEC ministers met again and decided that the 1.5 million bpd additional cut should not be only for Q2 but for the rest of 2020 as well.
Russia has taken this arm twisting not too well, and as its Energy Minister Alexander Novak returned to Vienna on Friday, he began bilateral consultations with several non-OPEC partners and with Saudi Energy Minister Prince Abdulaziz bin Salman.
The bilateral talks extended in the afternoon, and the OPEC+ meeting which was scheduled to begin at 11 a.m. Vienna time was delayed with hours.
Now it looks like the two most powerful producers at the table, Saudi Arabia for OPEC and Russia for non-OPEC, didn’t want to budge from their respective positions. Russia refused to cut deeper, while OPEC was signaling that it won’t cut without Russia on board.
The ‘no-deal’ outcome of the meeting was the least likely scenario the market and analysts had expected, and oil prices tumbled to their lowest levels since mid-2017 as reports emerged that there will not be a deal this time around.
By Tsvetana Paraskova for Oilprice.com
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However, if Saudi-led OPEC is so keen on effecting deeper production cuts, then they should aim at cutting their production by 5.0 million barrels a day (mbd) to totally eliminate the glut in the market estimated at 5.0 mbd. This is impossible to do since it will bankrupt the economies of Saudi Arabia and other OPEC members.
Still, there is faint light at the end of the tunnel that President Putin may very reluctantly give the nod to new OPEC cuts with a symbolic cut of its own just for the sake of maintaining good relations and cooperation with Saudi-led OPEC.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London