The technical committee of the Organisation of Petroleum Exporting Countries and its allies have recommended a 600,000 barrel per day production cut in an attempt to counter falling demand due to China’s coronavirus outbreak.
But Russia, the leader of the non-OPEC producers, has rejected the Saudi-led effort to deepen oil production cuts in response to the deadly coronavirus, The Wall Street Journal quoted cartel delegates as saying on Thursday. The group’s failure to reach a consensus has been described as a setback for OPEC’s de facto leader, Saudi Arabia, and its burgeoning alliance with Russia.
Delegates from the 23-member OPEC/non-OPEC coalition, known as OPEC+, met for three days in an emergency meeting this week to debate a possible response to falling oil demand in China as the world’s largest oil importer deals with the coronavirus crisis.
The virus, which originated in the city of Wuhan in Central China, has already contributed to a sharp decrease in demand for crude, driving oil prices to bear-market territory on Monday.
The international oil benchmark, Brent crude, fell below $55 per barrel on Monday. It rose slightly to $55.14 per barrel as of 5.40pm Nigerian time on Thursday. Saudi Arabia had initially backed output cuts of 800,000 to one million barrels per day to balance oil markets.
The gathering collapsed on Thursday without an agreement, after the Saudis proposed a compromise cut of 600,000bpd, as a temporary measure in the second quarter. The Saudi proposal had broad support, but the Russian delegation — which holds increasing sway within the group — rejected it.
Russian Energy Minister, Alexander Novak, said that it was too early to assess the impact of the virus on global oil demand. Novak added that any action this week would be premature, Moscow’s news agency TASS reported. Some members of the coalition, which includes 13 OPEC nations and 10 producers, haven’t given up on a possible output cut, officials said.
Delegates said Saudi Arabia’s decision to compromise its original proposal for aggressive cuts had brought Russia closer to a collective pact. According to the WSJ report, delegates will return home to consult with their energy ministers and national oil companies.
Failure to agree on action is a defeat for OPEC kingpin Saudi Arabia and its new energy minister, Prince Abdulaziz bin Salman. Previous ministers had been fired for failing to shore up oil prices and the prince had warned people close to him that he could face the same fate, according to OPEC and Saudi officials.
In order to balance its budget and fund expansive programmes aimed at diversifying its economy beyond oil, Saudi Arabia requires oil prices above $60 per barrel. OPEC+ members are in the midst of cutting 1.7 million bpd, up from 1.2 million last year, as part of a deal reached in December. The new deal is supposed to last until the end of March.