Saudis and Russia Hint at Further Action
Saudi Arabia and Russia have signalled they may be open to further output cuts after the latest OPEC+ deal to curb global oil supplies failed to stem crude’s downward spiral.
The two nations will “continue to closely monitor the oil market and are prepared to take further measures jointly with OPEC+ and other producers if these are deemed necessary,” Russian Energy Minister Alexander Novak and his Saudi counterpart Prince Abdulaziz bin Salman said in a joint statement published after a phone call.
Oil has plunged about 20% in New York since the group agreed to trim worldwide production by an unprecedented 9.7 million barrels a day, as lockdowns aimed at containing the coronavirus cause the biggest demand slump in history.
Prices hit a fresh 18-year low below US$19 a barrel on the 17th April.
The Organisation of Petroleum Exporting Countries projected on the 16th April that even full implementation of the cuts would not prevent a surplus in the second quarter, when demand for its crude will fall to the lowest in three decades.
The joint statement on the 17th April echoes earlier comments by Saudi Arabia’s bin Salman, who has said that his country is ready to cut oil production further if needed when the OPEC+ alliance meets again in June. “Flexibility and pragmatism will enable us to continue do more if we have to,” he said.
Russian Pain
The oil-price crash has been particularly painful for Russia. The nation’s coffers will get less than US$1 for each exported barrel of oil, according to Bloomberg calculations based on data from the Russian Finance Ministry.
Riyadh signalled on the 17th April that it was making a swift start to implementing its agreed cuts, with an announcement from state-run Saudi Aramco that it would supply customers with 8.5 million barrels a day as of the 1st May. That is almost four million a day below planned sales in April.
Nonetheless, it is uncertain whether the kingdom and its partners really have the appetite for further action right now.
The 8.5 million-barrel level represents a kind of floor for Saudi oil production because cutting any further would jeopardize output of associated gas, according to Helima Croft, head of commodity strategy at RBC Capital Markets LLC.
Domestic gas demand for power generation has been rising sharply in the kingdom for years.
There is also the signal Riyadh sent with its latest set of official selling prices, which fine-tune the cost that customers pay in relation to international oil prices. Aramco deepened the discounts for Asian buyers in May, an indication that it seeks to preserve its share of the fastest-growing market even as the production cuts take effect.
It is questionable too whether the 23-nation OPEC+ coalition, led by the Saudis and Russia, has the appetite for renewed negotiations following this month’s epic bout. Reaching the agreement on the 12th April took four days of contentious meetings, which included a walkout by Mexico and intervention by President Trump.
Source: Rigzone