Oil Prices Drop Opec & Russia talks collapse
Talks between Opec and Russia over whether to cut oil production in response to the coronavirus outbreak collapsed without a deal on Friday, sending crude prices plunging more than 9 per cent to their lowest level in three years.
Russia, which has allied with Saudi Arabia and Opec since 2016 to help prop up oil markets, rejected calls to together curtail almost 4 per cent of global crude production with new output cuts, as a sharp drop in aviation and transport demand has sent prices down by a third since January to near $45 a barrel.
Avalon will be working to develop the demand emerging from other sources of crude in particular demand as output from Aramco becomes volitile.
The failure to reach an agreement raises the prospect that some of the world’s largest oil producers will open the taps just as global oil demand is falling, hurting energy companies like BP and ExxonMobil and squeezing the budgets of oil-dependent economies from Texas to Brunei.
It will also undermine the alliance between Saudi Arabia and Russia, which had boosted Moscow’s influence in the Middle East, “Opec and Russia are staring into the abyss,” said Helima Croft at RBC Capital Markets. “It could spell the end of the Russia-Saudi alliance, but it is not clear what Moscow gains from deciding to burn down the house.”
The target for Russia and other producers could be the US shale sector, which for a decade has grown so rapidly as to absorb the majority of global oil demand growth, leaving Opec and other large producers with a shrinking share of the market.
Russian energy minister Alexander Novak said there were no production restraints on members of the so-called Opec+ group once its existing output deal expires at the end of this month.
Some analysts have doubts the kingdom will want prices to fall much lower.
Analysts warn it would also be a very risky exercise given the impact of the coronavirus on the world economy, as it threatens to become a global pandemic. Demand in China, the second largest oil consumer after the US, fell by as much as 4m b/d at the peak of lockdowns in the country, with traders concerned that even smaller-scale lockdowns in the US and Europe will cut deeply into oil consumption.