OPEC, allies to seek response to coronavirus pandemic

LONDON (AFP) – Organization of the Petroleum Exporting Countries (OPEC) and its allies will meet to discuss oil production cuts this week following United States (US) President Donald Trump’s claim that leading producers Russia and Saudi Arabia will slash output to boost tumbling prices.

The meeting was originally expected to be held via video conference today, but will now take place on Thursday, the government of energy-rich Azerbaijan said last Saturday.

“OPEC has informed us about the postponement. We are not aware of the reasons,” Energy Ministry spokeswoman Zamina Aliyeva told AFP.

There was no immediate comment from OPEC but a source close to the cartel said earlier that the meeting would probably take place later in the week.

OPEC kingpin Saudi Arabia called for an urgent meeting of the cartel and other countries to “stabilise the oil market” following a phone call between its Crown Prince and de facto leader Mohammed bin Salman and Trump.

The official Saudi Press Agency reported the talks were held at Trump’s request.

Oil prices have slumped to multi-decade lows since the beginning of the year amid the fallout from the coronavirus pandemic – which has weighed heavily on economies and crushed demand – and a price war between Saudi Arabia and Russia, the key player in OPEC+. The two countries failed to agree further output cuts at a meeting of the Vienna-based OPEC last month, leading Riyadh to open the oil taps to flood the market.

The Energy Ministry in OPEC+ member Azerbaijan said in a statement that this week’s meeting would aim to discuss the adoption of a “new declaration of cooperation”.

An Iraqi labourer works at an oil refinery in the southern town Nasiriyah. PHOTO: AFP

Russian President Vladimir Putin said Friday that Moscow was prepared to discuss a reduction of about 10 million barrels a day (mbd), “a little less, maybe a little more”.

“I believe that it is necessary to combine efforts in order to balance the market and reduce production,” Putin said.

Ten million barrels is equivalent roughly to what Saudi Arabia (9.8 mbd) and Russia (10.7 mbd) produced for all of February, according to the last monthly OPEC report.

According to a Russian source cited by the TASS news agency last Friday, US officials have been invited to take part in the meeting.

Trump surprised investors last Thursday by tweeting, “I expect and hope” Riyadh and Moscow will be cutting back “approximately 10 million barrels, and maybe substantially more”.

“Could be as high as 15 million barrels,” he added in a subsequent post.

Oil prices – which hit 18-year lows earlier this week – rallied sharply following Trump’s statements, marking a record rise in a day’s trading last Thursday.

Last Friday, Brent stood at USD34.11 a barrel, up 14 per cent, and WTI at USD28.34, up 12 per cent.

However, a deal “at this stage seems more like speculation than something likely to happen quickly,” warned Carlo Alberto De Casa of ActivTrades.

Rystad Energy Analyst Per Magnus Nysveen, who described next week’s meeting as a “poker game”, also warned that “the sticking point is how much each producer is willing to cut”.

The US is the world’s biggest producer with 13 mbd but its shale oil has high production costs and is no longer profitable at current prices. The figures cited for the possible output reduction would represent “a massive 10 per cent cut to global output,” said LCG Analyst Jasper Lawler.

“The question is how much has demand dropped because the coronavirus lockdown?” he said, referring to strict containment measures put in place around the world to stem the spread of the coronavirus.

“Ten million barrels is probably still not enough,” he added.

Josh Mahony of IG warned that with the chances of a deal “fairly low”, the market was “setting itself up for painful disappointment, which could see the gains of the past 48 hours quickly erased.”