OPEC in talks to win Russian backing for big oil cut amid coronavirus

Saudi Arabia and other OPEC members struggled on Wednesday to win support from Russia to join them in additional oil output cuts in a bid to prop up prices which have tumbled by a fifth this year because of the coronavirus outbreak.

A panel of several ministers from OPEC, Russia and other producers failed to clinch a preliminary agreement for additional cuts, OPEC sources said.

At the panel meeting in Vienna, the sources said Russia proposed keeping existing cuts by the group known as OPEC+ until the end of the second quarter.

Saudi Arabia wants extra cuts of 1 million to 1.5 million barrels per day (bpd) for the second quarter while keeping existing cuts of 2.1 million bpd in place until the end of 2020.

Russian Energy Minister Alexander Novak, who had held talks with his Saudi counterpart Prince Abdulaziz bin Salman earlier on Wednesday, left the meeting of the panel, known as the Joint Ministerial Monitoring Committee, after three hours of talks.

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Sources said Novak went to Moscow for more consultations and would return for the full OPEC+ meeting on Friday, while OPEC will hold its full ministerial meeting on Thursday.

“OPEC hopes for a cut bigger than 1 million but the challenge is still Russia,” one OPEC source said.

The Saudi and Russian ministers have made no public statements so far since arriving in the Austrian capital.

The talks in Vienna were following a familiar pattern to previous meetings. In the past, Moscow had initially been hesitant before ultimately agreeing to joint cuts with OPEC.

Burden of cuts

Benchmark Brent oil prices, which had been up 2 percent earlier on Wednesday, were trading down 1 percent near $51 a barrel later in the day on news Russia was still resisting new steps.

At those levels, oil prices are too low for many OPEC states to balance their budgets, although Russian President Vladimir Putin has said the level was acceptable for Moscow.

Moscow has said it is worried by the rise of shale oil in the United States, which is not part of OPEC. US producers have boosted output at the expense of the group.

Sources had told Reuters earlier this month that OPEC could agree deeper cuts even without Russia.

But two OPEC sources said Riyadh did not want to carry most of the burden of cuts alone and was pressing Moscow to join in with a proper contribution.

“Cuts will need to at least be towards the top end of the range, as we see further downward revisions in demand growth as Covid-19 spreads,” Warren Patterson from ING said in a note.

Existing cuts have not been enough to counter the impact of the coronavirus on China, the world’s biggest oil importer, and on the global economy. Factories have been disrupted, fewer people are travelling and other business has slowed, driving down oil demand.

“Whatever action OPEC ultimately takes seems unlikely to produce the desired effect of rebalancing the market and substantially raising prices. Rather, the strategy today may be one of attempting to stem further bloodletting and hope demand recovery can be achieved later in the year,” analysts from the Center for Strategic and International Studies said in a report.