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 percent 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.
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. But neither Opec members or Russia are immune to lower prices, and the last attempt to squeeze rivals by raising output in 2014 ended largely in failure two years later.