Russia’s budget is more resilient to low prices than its Middle Eastern allies/Bloomberg
by William MullallyThe Organisation of Petroleum Exporting Countries and their allies (OPEC+) talks ended in dramatic failure, auguring the end of a diplomatic alliance between Saudi Arabia and Russia that has underpinned crude prices and changed the balance of power in the Middle East.
Brent crude, the global benchmark, plunged the most in more than a decade after Russia refused to bend to the will of Saudi Arabia, whose high-stakes gamble pushed the group past the breaking point.
Russia’s budget is more resilient to low prices than its Middle Eastern allies. Furthermore, Russia argued that cheap crude will help wipe out competition from US shale and turn investors against companies that are already struggling.
The outcome is bad for energy giants like Exxon Mobil, resource-dependent countries from Latin America to Central Asia and companies like BP trying to reinvent themselves as greener producers. Low prices will help some economies though, as a stimulus in the face of the raging virus.
The breakdown is the biggest crisis since Saudi Arabia, Russia and more than 20 other nations created the OPEC+ alliance in 2016. The group, controlling more than half of the world’s oil production, has underpinned prices and reshaped the geopolitics of the Middle East.
Energy Minister Alexander Novak said Russian companies are free to ramp up idle capacity from 1 April 2020. When asked if Saudi Aramco could do the same, his Saudi counterpart Prince Abdulaziz bin Salman said, “I will keep you wondering.”
The last time those countries were free from the fetters of OPEC+ output limits, in Q2 2018, they both jacked up output to record highs, adding 1.5 million barrels a day between them.
Roger Diwan, an analyst at IHS Markit, said, “The coronavirus has claimed one victim—the alliance of oil producers, facing a dramatic decline in demand, they are throwing in the towel on market management.”
Senior OPEC officials, from Secretary-General Mohammad Barkindo to UAE Energy Minister Suhail Al Mazrouei, still held out hope that Russia would come back into the fold.
“We are hoping that our friends from Russia need more time to think about it and maybe come back, whenever they want to meet, we can meet in 10 days, in two days, whenever they are ready we can meet,” said Mazrouei.
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