World oil prices and OPEC

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Russia, Saudis, ‘Very Close’ To Reaching Oil Output Deal

Saudi Arabia and Russia are “very, very close” to reaching an agreement on how to react to the low oil prices, Kirill Dmitriev, chief executive at Russia’s sovereign wealth fund, the Russian Direct Investment Fund (RDIF), told CNBC on Monday.

“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” Dmitriev told CNBC on the day on which the former allies were set to hold a video meeting with other major producers, including U.S. representatives, to try to hammer out an agreement for a global collective cut of 10 million bpd and even more.

The meeting is now delayed to later this week, possibly April 9, OPEC sources told Reuters, after the spat between the Saudis and the Russians over who broke up their partnership took a turn for the worse over the weekend.

First, Russia’s Energy Minister Alexander Novak and President Vladimir Putin said on Friday that Saudi Arabia withdrew from the OPEC+ agreement, announcing “significant additional discounts on their oil, as well as plans for a sharp increase in production,” as per the Kremlin’s English translation of a meeting between Putin and Novak on the global energy markets.

“As I said, we did not initiate the breakup of the OPEC+ deal. We are always ready to reach an agreement with our partners, in the OPEC+ format, and we are prepared to cooperate with the United States on this issue. I consider it necessary to pool our efforts to balance the market and reduce production as a result of these concerted and well-coordinated efforts. Based on tentative estimates, I believe the reduction should be about 10 million barrels per day, more or less,” Putin said.

“The key partners in balancing the market should be producers like the United States,” Novak said, after noting that “Unfortunately, our partners from Saudi Arabia did not agree to extend the current deal on the current conditions. In fact, they withdrew from the agreement and announced significant additional discounts on their oil, as well as plans for a sharp increase in production.”

Saudi Arabia reacted to these statements by putting out a statement from Energy Minister Abdulaziz bin Salman, who said that, via the Saudi Press Agency:

“These claims are categorically false and contrary to fact.”

“His Royal Highness noted that the Kingdom has exerted great efforts with OPEC+ countries to take action to prevent a glut in the oil market resulting from a decline in the global economic growth. However, this proposal made by the Kingdom and approved by 22 countries, unfortunately was not agreed upon by the Russian delegates, leading to non-agreement,” Saudi Arabia said.

While the Saudis and Russians spat over who is to blame, they both signal that they would not cut production if the U.S. doesn’t join a global effort to reduce output.

Russia Is Ready To Make Major Output Cuts

Russia is prepared to undertake significant cuts to its oil production, according to two Russian sources who spoke to Reuters on Monday. The markets are hanging on every word from Saudi Arabia, Russia, and the United States about who is prepared to do what, for how long, and with what conditions.

Oil markets were largely trading down on Monday after OPEC over the weekend postponed the emergency meeting originally scheduled for today at the behest of the United States for later in the week. Although both Saudi Arabia and Russia have signaled its continued intent to curb oil production, the actions spooked markets.

At 1:05pm EDT, WTI was trading down 6.21% at $26.58, with Brent crude trading down 3.96% at $32.76. Both benchmarks are still up significantly week on week on the news that Russia and Saudi Arabia might finally be coming to their senses and reign in their oil production that far exceeds demand.

OPEC+ is now scheduled to hold a videoconference on Thursday this week to discuss the markets. Potential production cut figures between 10 million bpd and 15 million bpd have been thrown out as possible by Russia, Saudi Arabia, and the United States, although it is for the most part understood that even those massive figures may not be enough to offset the drop in demand due to Covid-19 that some say is more than 20 million bpd.

Until late last week, Saudi Arabia was determined to continue over producing, at over 12 million barrels per day at a time when the coronavirus is sapping the demand out of the market. A handful of other producers followed suit in an effort not to lose market share. But as reality set in that the virus was interrupting demand more than the producers thought possible, cooler heads appear to be prevailing.