The oil market slump mobilizes OPEC

news-single-imgcaption" style="width:240px">Crude prices, already battered as tight policies of containment of populations plunged until Monday reaching more seen levels since 2002. (Keystone)

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The Organization of the Petroleum Exporting Countries (OPEC) and Russia want to resume their discussions to consider a major response to the slump in the black gold market, weighed down by the pandemic and a price war, but a meeting scheduled for Monday has been postponed until Thursday.

This exceptional meeting by videoconference should allow us to discuss a massive reduction in production, to the tune of 10 million barrels per day (mbd), a volume mentioned by Vladimir Putin on Friday.

The framework and subject of the negotiations, however, still seem to be refined and the meeting was finally postponed to Thursday, according to the Azerbaijani government.

“OPEC informed us of the postponement. We do not know the reasons for it,” energy ministry spokesman Zamina Aliyeva told AFP on Saturday.

OPEC did not comment on the information, but a source close to the organization said earlier today that the meeting would take place “later in the week”.

A passing of arms between Saudi Arabia, leader of OPEC, and Russia, not a member of the cartel, preceded this postponement, the two countries accusing each other of having dramatically failed their previous discussions, a month ago.

The two countries however seem to want to cooperate again. The Russian president said on Friday that it was “necessary to join efforts to balance the market and reduce production”.

Agreement “would rebalance demand deficit, bring prices down to more profitable levels and avoid production stoppages,” said Per Magnus Nysveen, analyst at Rystad, describing a real “game of poker” .

The sticking point is above all “the quantity that each producer will be ready to take for him”, he added.

American shadow

The figure of 10 mbd is colossal since it alone represents roughly Russian or Saudi production, respectively 10.7 mbd and 9.8 mbd in February, according to the latest OPEC monthly report.

The figure first appeared in a tweet from the President on Thursday.

Taking the markets by surprise, which immediately jumped to his reading, Donald Trump said “hope and expect” that Ryad and Moscow will reduce their production “by about ten million barrels, and perhaps much more “.

This exit came when the tenant of the White House promised to defend the American oil sector, the world’s largest producer with 13 mbd, but whose shale oil has a high cost price and is no longer profitable at current prices.

The shadow of Washington hangs over the discussions to come, Ryad having warned that they would take place “at the request of the President of the United States Donald Trump”, according to the Saudi official press agency SPA.

According to a Russian source cited by the TASS agency, the American regulator was even invited to take part in the meeting. Vladimir Putin said he was ready “to cooperate with the United States”.

Avoid the fiasco

The main issue for the cartel and its allies will be to avoid the fiasco of the previous meeting, which ended not only in a lack of agreement but in a price war launched by Saudi Arabia.

Crude oil prices, already squeezed by stalled demand as tight policies of containment spread across the world in response to the Covid-19 pandemic, then plunged to more levels on Monday seen since 2002.

The two benchmark prices, that of the barrel of European Brent and that of the American WTI, ended the worst quarter in their history at the start of the year, with prices divided by three over the period.

The prospect of a calming of the price war and a production finally suppressed jointly, even if it will surely not be able to meet the abysmal deficit in demand for black gold, however, enabled Thursday and Friday to course to recover.

But beware of false hopes, warns Chris Beauchamp, analyst at IG: “the chances of reaching an agreement seem quite low” and the market “is preparing for a painful disappointment, which could see the gains of the last 48 hours quickly erased”. (awp)

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