After oil price crash, Russia looks for OPEC deal
LONDON - After a 3-week energy standoff between Saudi Arabia and Russia that resulted in a 45% drop in the price of crude oil, Russian officials were reportedly looking to establish another OPEC+ deal to balance oil markets.
“We are in contact with Saudi Arabia and a number of other countries. Based on these contacts we see that if the number of OPEC+ members will increase and other countries will join there is a possibility of a joint agreement to balance oil markets,” Kirill Dmitriev, head of Russia’s sovereign wealth fund, told Thomson Reuters
Caught between the Saudi-Russian oil price war and the coronavirus pandemic, the US government has been considering how to end the energy standoff and would likely continue to do so if talks between OPEC and Russia fall through, analysts said.
US Secretary of State Mike Pompeo reached out to Saudi Crown Prince Mohammed bin Salman bin Abdulaziz, requesting that Saudi Arabia “reassures” oil and financial markets.
A US State Department release said Saudi Arabia “has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty.”
“We agreed all countries need to work together to contain the pandemic and stabilise energy markets,” Pompeo said on Twitter.
The Trump administration has been looking at diplomatic strategies to end the oil standoff. The Wall Street Journal reported that US officials had planned to ask Saudi Arabia to reduce production levels before the dispute with Russia.
A US official told the Journal that “the administration could use the threat of sanctions on Russia as part of its engagement with Saudi Arabia to assure the kingdom its rival Russia won’t easily benefit from Saudi cutbacks.”
The United States is reportedly considering an energy alliance with Saudi Arabia that would include Riyadh leaving OPEC. “I don’t know that that’s going to be presented in any formal way… as part of the public-policy process,” US Energy Secretary Dan Brouillette told Bloomberg News.
A former Saudi energy official labelled such a move unrealistic and stressed that Saudi Arabia is central to OPEC and that the US request would mean dissolution of the cartel.
Long-time Trump Middle East security adviser Victoria Coates has been appointed special energy representative to Saudi Arabia, reporting directly to Brouillette. She is to be “based in Saudi Arabia to ensure the Department of Energy has an added presence in the region,” a US Energy Department official told Thomson Reuters.
In a Washington Post analysis, energy expert Jim Krane defined the dynamics of major oil-producing countries as they relate to Saudi Arabia, saying that “ramping up oil production pushes down prices, hurting rivals like Russia and America’s shale oil producers.”
“It also sends a reminder that Riyadh’s status as the world’s lowest-cost producer means all rival producers depend to some extent on Saudi good graces for their share of the market,” Krane wrote.
The spike in oil production has led to the Russian rouble losing value and trading at its lowest level against the US dollar in four years.
The situation after the collapse of the OPEC+ Russia alliance, following a meeting March 6 that had been meant to address production cuts related to the effects of the coronavirus pandemic on the energy market.
Russian Energy Minister Alexander Novak told OPEC that Russia would not make further cuts, a decision based on the Kremlin’s talks with Russian oil companies. Energy analysts said that the Russian move was also intended to punish the US shale oil industry.
Riyadh ordered Saudi Aramco to ramp up production to 13 million barrels per day. The United Arab Emirates said it would join Saudi Arabia in increasing oil output.
“In line with our production capacity growth strategy… we are in a position to supply the market with more than 4 million barrels per day in April,” Abu Dhabi National Oil Company said in a statement.
Russia denied the existence of an oil price war with Saudi Arabia.
“Russia is not leading any wars with anybody,” Kremlin spokesman Dmitry Peskov said. “We have good partner-like relations with Saudi Arabia. We don’t think anybody should interfere in these relations.”