As usual the western media is putting pressure on Organization of Petroleum Exporting Countries and Russia, commonly known as OPEC plus to opt for deeper production cut. After the inconclusive meeting of the group on 6th March 2020, the media is projecting a rift between OPEC, led by Saudi Arabia and Russia, but has not said a word to demand United States to cut production. It is on record that now United States has attained the status of largest oil producing country, followed by Russia and Saudi Arabia.
On Friday, Brent price witnessed its biggest daily loss in more than 11 years, after Russia didn’t support a production cut by OPEC to stabilize prices hit in the aftermath of coronavirus outbreak. Prices plunged because the OPEC conference remained inconclusive. The split between OPEC and Russia revives fears of a 2014 oil price crash, when Saudi Arabia and Russia fought for market share with US shale oil producers of United States; it is on record that United State has never participated in any output limiting pact.
Now there is uncertainty about whether the OPEC plus alliance will survive. A day earlier, OPEC issued a call to cut production and also indicated that there would be no deal without Russia. It is believed that Moscow didn’t agree at production cuts not only because it has a stronger stomach for lower prices than Riyadh, but also because the oil market is suffering from a demand trap.
There is talk that if OPEC plus has failed to agree on additional production cuts, would the current agreement – the one agreed in December 2019 and set to expire in March in 2020 be adhered to or producers will be at liberty to raise output. The fate of the alliance is now on the rocks, although the group pledged to continue to talk going forward.
There was pressure on Russia to agree, but Moscow has been skeptical of additional cuts for quite some time. A few days ago, Russian President Vladimir Putin said that his country was more or less contented with where oil prices were, noting that the Russian budget had taken into accounts the possibility of low oil prices.
Western analysts find it hard that Russia didn’t agree to further production cut. They believe it required only a modest reduction on Moscow’s part that would have boosted crude prices. They also believe that no-deal would almost surely lead to further decline in prices.
Another twist appeared when Iranian Oil Minister, Bijan Namdar Zanganeh told reporters that if Russia does not sign there will be no deal. Western experts term this a hollow threat. They insist, OPEC has shown signs of a determination to cut output even without Russia. The pressure on government budgets from low oil prices is already pinching.
“OPEC is making the cuts conditional on Russia joining. What Moscow perhaps is underestimating is that Saudi Arabia may be ready to walk away if it doesn’t get a positive answer,” said Amrita Sen, chief oil analyst at consultant Energy Aspects, reported Bloomberg.
Russia, for its part, sees US shale on the ropes, with financial stress deepening for small and medium-sized drillers. US oil production growth has slowed dramatically in recent weeks and months, and if WTI lingers below US$50/barrel for a long period, first output will flatten and then decline.
Keeping crude oil prices has facilitated the US in boosting production. Time has come for Saudi Arabia and Russia to snatch the title of largest oil producing country from United States. This target can’t be achieved without plunging crude oil prices below US$40/barrel that will force many US Shale companies to shutdown their operations.