Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, summoned his counterparts in Opec to the Park Hyatt hotel in Vienna for crisis talks last Thursday evening. Earlier that day, the oil cartel had announced plans for additional production cuts of 1.5m barrels a day for the next three months in response to collapsing global demand because of the coronavirus outbreak. But just hours later, the proposal was in trouble. The oil market was not buying it and – worse – neither was Russia, Opec’s partner in a three-year alliance.
“From the beginning the Russians were just not playing ball,” said one person familiar with the weeks-long negotiations. After lobbying Moscow heavily to take on new cuts, it was now decision time. Prince Abdulaziz, with the backing of his half brother – the powerful crown prince, Mohammed bin Salman – and his Opec peers changed the plan that night, promising more prolonged cuts. But to enact them, Russia had to agree. It was an ultimatum.
Few, even in Riyadh or Moscow, could have predicted what followed in the days after, as an already ailing oil market went into meltdown. Interviews with dozens of Opec officials, government advisers, traders and energy executives build a picture of a sector that was perched precariously and is now in freefall.
Since the Park Hyatt meeting, benchmark Brent crude has fallen 34 per cent, the world’s biggest oil and gas majors have seen billions of dollars wiped from their share prices – deepening the broader market sell-off- and producer economies fear the fallout. Saudi Arabia and Russia – once unlikely allies – are in a fresh battle for market share. “This is the nuclear version of a price war, when demand destruction is already beyond parallel, or frankly comprehension,” said Roger Diwan at consultancy IHS Markit and a longtime Opec watcher.
ExxonMobil doesn’t see it coming
The calm before the eruption in oil markets was striking. As Opec was meeting in Vienna last Thursday, Darren Woods, ExxonMobil’s chief executive, strode on to a dais inside the colonnaded New York Stock Exchange building to begin his company’s annual investor day. In the hallways, staff wiped down door handles with disinfectant.