LDN - Business

OPEC oil cuts deal in trouble as Russia still not on board

[March 06, 2020] By Rania El Gamal, Alex Lawler and Olesya Astakhova

VIENNA (Reuters) - Russia will not back an OPEC call for extra oil output cuts and will only agree to extending existing curbs, a Russian source said on Friday, threatening to derail a plan by OPEC ministers for deeper reductions to cope with the coronavirus outbreak.

"That position won't change," the high-level Russian source told Reuters as ministers from OPEC, Russia and other producers, a group known as OPEC+, gathered for crunch talks at OPEC's Vienna headquarters.

OPEC ministers said the coronavirus outbreak had created an "unprecedented situation" that demanded action, as measures to stop the virus spreading dampens global economic activity and oil demand. Forecasts for 2020 demand growth have been slashed.

OPEC ministers said on Thursday they backed an additional 1.5 million barrels per day (bpd) of oil cuts until the end of 2020, a much bigger and more extended move than expected, but they made the proposal conditional on Russia and other non-OPEC producers backing the curbs.

Russian Energy Minister Alexander Novak has made no public statements about the proposed extra cuts during his trips to and from Vienna this week, although Moscow has long indicated it was uneasy about any further output reductions.

Existing cuts by OPEC+ amount to 2.1 million bpd, but those have failed to support oil prices which have lost a quarter of their value since the start of the year.

"There is a problem. OPEC has no intention to cut without Russia. We need to do something or the consequences will be drastic for everyone," a source from a Gulf producer said.

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The logo of the Organisation of the Petroleum Exporting Countries (OPEC) sits outside its headquarters ahead of the OPEC and NON-OPEC meeting, Austria December 6, 2019. REUTERS/Leonhard Foeger/File Photo

An OPEC source confirmed that Russia had rejected a deeper cut proposal during informal consultations on Friday, while the official meeting of OPEC+ ministers was delayed for several hours from its scheduled start at 0900 GMT.

Libya's representative at the talks, National Oil Corporation Chairman Mustafa Sanallah, left the OPEC building telling reporters, "No white smoke yet", referring to the means used by the Vatican to announce a new pope has been chosen.

Iranian Oil Minister Bijan Zanganeh, whose country is a member of OPEC but exempted from any curbs, had said earlier on Thursday that OPEC was still working with Russia and other non-OPEC states to reach a deal, the SHANA news agency reported.

The proposed new cuts would be on top of existing curbs due to expire in March. OPEC ministers have also called for extending the existing deal, taking total supply reductions to about 3.6 million bpd or about 3.6% of global supplies.

Moscow's decision not to back the additional curbs could undermine cooperation between the Organization of the Petroleum Exporting Countries and Russia, an informal alliance that has propped up oil prices since 2016.

Oil prices extended their decline after the comment by the high-level Russian source. Brent fell as much as 5% on Friday to below $48 a barrel.

(Additional reporting by Shadia Nasralla and Ahmad Ghaddar; Editing by Edmund Blair and Dmitry Zhdannikov)

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