Dubai: The two most important members of Opec+ are split on whether the slump in oil prices triggered by the virus outbreak in China requires an urgent response.
Saudi Arabia is pushing to convene an emergency meeting of the cartel next month, bringing forward a scheduled discussion of oil-supply policy from March, said delegates from the group. The kingdom is motivated by growing alarm that Asia’s coronavirus outbreak will batter energy demand, but so far Russia has rebuffed the overture, they said.
Despite renewed efforts by the Saudis on Friday, Moscow remains unconvinced, the delegates added. Crude traded near a six-month low at about $53 (Dh194) a barrel in New York as of 7.31am local time, on track for a slump of about 13 per cent this month.
China is the oil market’s primary source of demand growth and measures taken to slow the spread of the coronavirus — including a lockdown in one of the country’s major cities and the unprecedented extension of the Lunar New Year holiday — could wipe out a big chunk of that additional consumption.
If the Organisation of Petroleum Exporting Countries and its allies were to agree on an early meeting, history suggests it may result in further action to defend prices. The last hastily-convened gathering, in Algiers in late 2016, is where the Opec+ coalition was first created. At the previous emergency meeting, in 2008, the group reduced output as the global financial crisis slashed demand.
Yet as Opec+ is already making substantial supply cutbacks, many analysts are sceptical on how much more they’ll be prepared to do. The group unveiled a new set of supply curbs just over a month ago, which only came together after considerable diplomatic wrangling.
Russia, which has become the most important producer in the coalition alongside Saudi Arabia, has typically taken some persuading to sign up for additional cuts and has a patchy record of implementing its pledges.
The government in Moscow requires lower crude prices than the Saudis and most other Opec countries to cover its spending plans. Still, the alliance with Opec has served the Kremlin’s political and economic interests, with Russia consistently one of the biggest financial beneficiaries of the deal.
The risks of inaction could be severe. This month’s plunge in oil prices has been mitigated by the halt of exports from Opec member Libya, where a militia leader, Khalifa Haftar, has blockaded oil ports while haggling over a peace settlement with the national government.
A resolution there could restart the flow of about 1 million barrels a day onto world markets, sending prices — already far below the levels most Opec members need to cover government spending — even lower.