Members of the Organization of the Petroleum Exporting Countries (OPEC), an intergovernmental organization of 14 nations, especially Saudi Arabia and other oil producers are pressuring Russia to support the organization’s policy of additional oil output cuts.
On Wednesday, sources related to the organization stated that a panel of several ministers from OPEC sought to win support from Russia in oil output cuts in a view to maintain its prices which have been toppled by a fifth this year because of the coronavirus outbreak. However, Russia had failed to consent a preliminary agreement for additional cuts and the OPEC countries will wait till Friday to finalize the matter.
At the OPEC’s panel meeting in Vienna, the sources said Saudi Arabia proposed an “extra cuts of 1 million to 1.5 million barrels per day (bpd) for the second quarter (Q2) while keeping the existing cuts of 2.1 million bpd in place until the end of 2020.”
In the meeting of the OPEC’s Joint Ministerial Monitoring Committee, Russian Energy Minister, Alexander Novak, who had held talks with his Saudi counterpart Prince Abdulaziz bin Salman earlier on Wednesday, suggested in keeping existing cuts until the end of the Q2.
Sources said Novak left the penal meeting for Moscow, after three hours of talk, to discuss the proposal with Russian Leaders and he would be returning for the full OPEC+ meeting on Friday. A source said, “OPEC hopes for a cut bigger than 1 million but the challenge is still Russia.”
Considering the urgent needs, OPEC will hold its full ministerial meeting on Thursday ahead of all members meeting with Russia. Meanwhile, it was reported that the Russian minister made no public statement before heading back to Moscow.
Burden of Cut
According to the source, the existing cuts would not be enough to address the impact of the coronavirus (Covid-19) on the oil importers and on the global economy at large. The virus outbreak has led to a rapid decline of oil demand by China, the world’s biggest oil importer, due to less traveling and slowdown of business activities that resulted in toppling of global oil demand.
Considering the present scenario, the OPEC members put their concerns that oil prices were too low for many OPEC states to balance their budgets while Russian President, Vladimir Putin has said the level would be acceptable for Moscow. A source reported, Moscow’s real concern was rather on the rise of shale oil in the US, which was not under the regulation of the organization.
On the question about why OPEC could set deeper cuts without Russia, two OPEC sources said Riyadh wished to share the burden of the cost involved in the output cut with Russia with a proper contribution. Warren Patterson from ING said in a statement, “Cuts will need to at least be towards the top end of the range, as we see further downward revisions in demand growth as Covid-19 spreads.”
Meanwhile, analysts from the Center for Strategic and International Studies said in a report, “Whatever action OPEC ultimately takes seems unlikely to produce the desired effect of rebalancing the market and substantially raising prices. Rather, the strategy today may be one of attempting to stem further bloodletting and hope demand recovery can be achieved later in the year.”
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