Oil slides by 4% after Russia rejects steeper OPEC+ cut
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[March 06, 2020] By
Julia Payne
LONDON (Reuters) - Oil prices fell 4% on
Friday to their lowest since July 2017 after Reuters reported that
Russia will not agree to steeper oil output cuts by OPEC and its allies
to support prices.
Brent and WTI crude futures tumbled by nearly $3 a barrel, or more than
5%, after the report.
By 1225 GMT Brent crude was down $1.96, or 3.9%, at $48.03 a barrel.
U.S. West Texas Intermediate (WTI) was down $1.85, or 4%, at $44.05.
A Russian high-level source told Reuters on Friday that Moscow would not
back an OPEC call for extra reductions in oil output and would agree
only to an extension of existing cuts by OPEC and its allies, a group
known as OPEC+.
"What counts really is what Saudi Arabia does. If Russia joined, it will
not add substantially. We need to see if OPEC goes ahead all alone,"
said Olivier Jakob, of the Petromatrix consultancy.
One Middle East source said that OPEC had no intention of pursuing
deeper cuts without Russia.
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OPEC is pushing for an additional 1.5 million barrels per day (bpd) of
cuts until the end of 2020.
Sources at the Organization of the Petroleum Exporting Countries (OPEC)
confirmed Russia's position and a formal OPEC+ meeting has been delayed,
with non-OPEC producers holding their own separate meeting.
Non-OPEC states were expected to contribute 500,000 bpd to the overall
extra cut, OPEC ministers said. The new deal would have meant OPEC+
production curbs amounting to a total of 3.6 million bpd, or about 3.6%
of global supply.
"Our balances suggest that at least 2 million bpd needs to be removed
from the market during Q2 to ensure a stabilisation in oil prices," said
Bjoernar Tonhaugen, head of oil markets at Rystad Energy.
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Oil pump jacks work at sunset near Midland, Texas, U.S., August 21,
2019. REUTERS/Jessica Lutz/File Photo
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"If this results in OPEC not going through with their own proposed 1 million bpd
cuts in Q2, the result ... could be devastating. Brent could swiftly drop 15% to
the low $40s and WTI to the high $30s in this scenario."
WIDER ECONOMY
Global stock markets tumbled on Friday as disruptions to business from the
spreading coronavirus epidemic worsened. European shares opened sharply lower,
with travel stocks bearing the brunt.
However, after marking its worst weekly performance since the 2008 financial
crisis a week ago, the MSCI All-Country World Index was up 1.7% on the week. <MKTS/GLOB>
Even with the deeper cut, Goldman Sachs said the OPEC+ deal would not have
prevented a global oil market surplus in the second quarter. The bank maintained
its Brent price forecast at $45 a barrel in April.
"Ultimately, a rebound in demand, not supply cuts, will be the necessary
catalyst for a sustainable rebound in prices," the bank said.
Saudi Arabia's state oil company told buyers that is has delayed publishing its
crude oil official selling prices (OSP) for April until after the OPEC+ meeting.
Meanwhile, ANZ said that global oil consumption could fall by 1.6 million bpd in
the first half of 2020 and contract by about 300,000 bpd for the full year.
"Growth may return in H2 (second half of 2020) but is unlikely to be enough to
offset the losses," the bank said.
(Reporting by Julia Payne; Editing by David Goodman)
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