Before OPEC meeting, Russia is cagey about more oil cuts
With a critical meeting of the Organization of Petroleum Exporting Countries (OPEC) just days away, the cartel’s most crucial ally, Russia, remains cagey about its willingness to cut oil production to buoy prices hit by the coronavirus outbreak.
The cartel’s de facto leader, Saudi Arabia, has reportedly been leading the charge for OPEC and its allies, a grouping known as OPEC, to lower production by as much as one million barrels per day in response to the outbreak. But Russia has yet to get on board with that strategy.
On Monday, Russian energy minister Alexander Novak told reporters in Moscow that he is still evaluating a proposed production cut of 600,000 barrels per day made by an OPEC technical committee last month.
“We are looking at the recommendation made by the technical committee,” said Novak, adding that he had not yet received a proposal to deepen cuts by one million barrels per day (bpd).
OPEC and its allies are scheduled to meet in Vienna on March 5-6 to discuss whether to extend their current production cuts of 1.7 million bpd that were agreed in December and run to the end of March.
The OPEC technical committee will meet again on Tuesday to iron out details in advance of the Vienna talks.
Global pandemic fears continued to intensify over the weekend with additional coronavirus cases reported in China, Italy, Iran and the United States, rattling markets and threatening a global economic slowdown.
Last week, Saudi Arabia’s energy minister expressed confidence that OPEC would respond in a timely matter to the spread of the virus. The kingdom needs oil to fetch approximately $83 per barrel to “break even” or balance its state budget, according to the International Monetary Fund.
Russia needs oil to fetch less than $50 a barrel to break even.
“In Moscow, Energy Minister Novak has expressed scepticism that the virus will dent demand as much as others say. This may be a holding position, or reflect a desire not to rush into policy change,” Laura James, senior Middle East analyst at Oxford Analytica, told Al Jazeera.
Global benchmark Brent crude fell below $50 per barrel last week, its lowest since July 2017. On Monday, it bounced back to above $51 on hopes for a new deal among OPEC and its cartels.
And OPEC’s oil output plunged again in February, according to a Reuters survey, as a conflict in Libya further restricted supplies.
“There are technical drivers for a reluctance to slow production and Russian energy companies have commercial concerns, although on the government side, fiscal pressures are currently manageable,” James added.
With $500bn in state coffers, Russia has room to mull over further cuts. It has in the past resisted proposals to cut production only to get on board at the last minute and has yet to indicate whether it will support additional joint cuts.
“The 2020 fiscal breakeven price for Russia is down to $42.4 per barrel. In the last decade state finances were more of an issue, but in 2019, the focus was actually on managing to disburse budgetary allocations,” she added.
On Sunday, Russian President Vladimir Putin met with oil companies to discuss the impact of coronavirus on global oil prices, the Kremlin said. Putin said while Russia is mostly protected from the oil price fall “this does not set aside the need for action, including together with foreign partners.”
Still, analysts say there will be added pressure on Saudi Arabia to bring all partners to the negotiating table and fast as pandemic fears intensify, factories in China remain shuttered and health officials warn that the virus may get worse before it gets better.
“The Saudis are responding appropriately to the coronavirus. OPEC has already cut production by 1.7 million barrels a day. Now, the Saudis are asking for another big cut, up to another million barrels per day,” Jim Krane, Wallace S Wilson Fellow for Energy Studies at Rice University’s Baker Institute, told Al Jazeera.
“It’s not easy to align a slow-moving global industry with a fast-moving virus, but that is what seems to be happening,” Krane added.