Russia balked at OPEC’s proposed steep production cuts to stabilize prices. A Russian high-level source told Reuters that Moscow would not back a call for extra reductions in oil output and would agree only to an extension of existing cuts by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+.
“If this results in OPEC not going through with their own proposed 1 million bpd cuts in Q2, the result … could be devastating. Brent could swiftly drop 15 percent to the low $40s and WTI to the high $30s in this scenario,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
Brent futures fell $3.71, or 7.4 percent, to $46.31 a barrel by 10:23 a.m. EST (1523 GMT). U.S. West Texas Intermediate (WTI) crude fell $3.41, or 7.4 percent, to $42.49.
Those prices were the lowest for Brent since July 2017 and for WTI since June 2017.
“What counts really is what Saudi Arabia does. If Russia joined, it will not add substantially. We need to see if OPEC goes ahead all alone,” said Olivier Jakob, of the Petromatrix consultancy.
One Middle East source said OPEC had no intention of pursuing deeper cuts without Russia.
OPEC is pushing for an additional 1.5 million barrels per day (bpd) of cuts until the end of 2020.
Sources at the Organization of the Petroleum Exporting Countries (OPEC) confirmed Russia’s position and a formal OPEC+ meeting was under way after hours of delay.
An OPEC+ delegate said there were “positive signs” after a separate, earlier OPEC+ meeting had finished.
Non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut, OPEC ministers said. The new deal would have meant OPEC+ production curbs amounting to a total of 3.6 million bpd, or about 3.6 percent of global supply.
Even with the deeper cut, Goldman Sachs said the OPEC+ deal would not have prevented a global oil market surplus in the second quarter. The bank maintained its Brent price forecast at $45 a barrel in April.
Russia will not back an OPEC call for extra oil output cuts and will only agree to extending existing curbs, a Russian source said on March 6, threatening to derail a call by OPEC ministers for deeper reductions to cope with the coronavirus outbreak.
“That position won’t change,” the high-level Russian source told Reuters as ministers from OPEC, Russia and other producers, a group known as OPEC+, gathered for crunch talks at OPEC’s Vienna headquarters.
OPEC ministers had said on March 5 that they backed an additional 1.5 million barrels per day (bpd) of oil cuts until the end of 2020, a much bigger and more extended move than expected, but they made the proposal conditional on Russia and other non-OPEC producers backing the curbs.
Iranian Oil Minister Bijan Zanganeh, whose country is a member of OPEC but exempted from any curbs, said on March 5 that OPEC was working with Russia and other non-OPEC states to reach a deal, the SHANA news agency reported.
The proposed new cuts would be on top of existing curbs of 2.1 million bpd under an OPEC+ deal due to expire in March. OPEC ministers have called for extending that deal as part of a new pact, taking total supply reductions to about 3.6 million bpd.
Moscow’s decision not to back the additional curbs could undermine cooperation between the Organization of the Petroleum Exporting Countries and Russia, an informal alliance that has propped up oil prices since 2016.
Oil prices tumbled about a $1 on the comment by the high-level Russian source, taking the price down below $48 a barrel and losing more than a quarter of its value since the start of the year due to fears the virus would destroy oil demand.
Russian Energy Minister Alexander Novak, who was at the OPEC headquarters in talks with his counterparts in OPEC and other countries, has not made any public statement on any cuts since he travelled to and from Vienna this week.
