Crude prices hit a 2½-year low Friday as two of the world’s biggest oil producers remained at odds over how to balance global supply in the face of the coronavirus’s devastating effect on demand.
Saudi Arabia remained unable to persuade Russia to join its plan for deeper crude production cuts at a gathering of the Organization of the Petroleum Exporting Countries and its allies in Vienna.
The start of the meeting was delayed as Russian delegates insisted they wouldn’t debate further action before the group’s next scheduled meeting in June.
Brent crude, the global benchmark, dropped 5.1% to $47.47 a barrel, on course for its lowest close since July 2017. U.S. crude prices were down 5.3% at $43.47 a barrel, having earlier fallen below their intraday low from last week and hitting a fresh 13-month low.
The Saudi-Russia stalemate comes a day after OPEC’s ministers agreed to a plan that would involve production cuts of 1 million barrels a day through the end of this year, to be shared among its 13 member nations. The proposal also calls for another 500,000 barrels of daily cuts to be divided among the cartel’s 10 Russia-led oil-producing allies.
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OPEC said later Thursday that it recommended extending the deeper cuts, originally planned to end in June, through 2020.
Russia, the de facto leader of the additional countries that make up the group known as OPEC+, was still pushing to roll over existing cuts without any additional reductions and wait until June before considering any cuts beyond those agreed at the last alliance summit in December, according to people familiar with the matter.
“They are saying a deeper cut is not the answer, and we are being too reactive,” said an OPEC delegate.
Moscow is favoring some kind of economic stimulus package similar to the one deployed by the Chinese government in recent weeks, the people said.
Russia’s economy is less dependent on high oil prices than Saudi Arabia’s, a factor that analysts say gives Moscow leverage over its OPEC+ colleagues.
Russian Energy Minister Alexander Novak met with his counterparts in other oil-producing nations in Vienna on Friday.
Photo: Ronald Zak/Associated PressThe coronavirus epidemic is expected to diminish global crude demand by as much as 2.1 million barrels a day in the first half of 2020, according to an estimate from Goldman Sachs. IHS Markit and Standard Chartered forecast a decline in demand for 2020’s first two quarters by around 2 million barrels a day from the same period a year earlier.
Oil prices began the day lower, with investors concerned that Russia might not agree with the OPEC’s plan. But crude’s slide sharply accelerated as The Wall Street Journal reported that Russia remained against any new cuts at all, with Moscow instead wanting to delay any decision on response to the drop in oil demand from the coronavirus until June.
“If no agreement is reached at the OPEC+ meeting today, we could see oil prices drop below the $40-a-barrel mark, as the oil market oversupply will lead to surging oil inventories in the months ahead,” said Helge André Martinsen, a senior oil market analyst at DNB Markets.
The Journal reported Thursday that in addition to the new 1.5-million-barrel cut OPEC had advised, Saudi Arabia and its Persian Gulf allies were considering additional cuts of 600,000 barrels, a move that would take the fresh cuts to a total of 2.1 million barrels a day.
Market expectations of a cut have increased in recent days and “any cut announcement less than 2 million barrels a day for the second quarter will result in market disappointment and downward pressure” on oil prices, said Bjørnar Tonhaugen, head of oil markets at Rystad Energy.
“If OPEC goes ahead with its 1 million barrel a day cut, despite Russia’s stance, the market will still be disappointed,” he added.
Write to Summer Said at summer.said@wsj.com, Benoit Faucon at benoit.faucon@wsj.com and David Hodari at David.Hodari@dowjones.com
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Saudi-Russian Deadlock Pushes Oil Down 5% - The Wall Street Journal
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