Oil price rallied near $40 per barrel on Sunday evening, as a virtual meeting between Organisation and Petroleum Exporting Countries (OPEC) and its allies have been postponed till Thursday, amid mounting tensions between Saudi Arabia and Russia.
The global oil price crash is setting up a bleak second quarter for many nations including countries like Nigeria whose economies are heavily dependent on oil receipts. Nigeria is particularly vulnerable.
To solve this problem, OPEC and allies led by Russia, a group known as OPEC+, are scheduled to meet on Thursday to discuss a possible new global crude supply cut to end a price war between Saudi Arabia and Russia which has prompted U.S. President Donald Trump to intervene.
The OPEC+ meeting was initially due to take place on Monday, but was postponed to April 9 “to allow for more time to reach out to all producers including OPEC+ and others”, a Saudi source confirmed to Reuters.
Over the weekend, there seemed to be some momentum on negotiations, OPEC was rumoured to be exploring a scenario in which Saudi cuts by 3 mbpd, Russia cuts by 1.5 mbpd, non-Saudi Gulf States cut by 1.5 mbpd, and the U.S., Canada and Brazil cut by nearly 2 mbpd. While Norway has also said it would consider cutting production in any coordinated global effort.
The Saudi source said that Riyadh wants to avoid a repeat of the outcome of a March meeting where oil talks collapsed due to Russia’s refusal to cut output.
The Thursday virtual meeting would include oil-producing countries from outside the OPEC+ alliance. Mexico, United States, Canada, Norway and the United Kingdom, who are non-members, could likely be invited for the meeting.
On Sunday, Saudi Aramco announced it will delay the release of its crude official selling prices (OSP) for May until April 10 to wait for the outcome of the proposed meeting OPEC and its allies regarding possible output cuts.
“That’s the most important thing on the supply side; they need to reduce the supply because the demand side is falling. Otherwise, the gap between supply and demand is so big,” Ang Kok Heng, chief investment officer at Phillip Capital Management, said in a note.
“Even if China wants to buy more oil to build its reserves, they would need to store and oil storage is full,” Ang said. He sees Russia being the obstacle to a potential ceasefire as Saudi appeared ready to reduce production.
Brent crude jumped 4.17 percent to $36.11 per barrel on Friday, while US West Texas Intermediate gained 0.43 percent to $26.47 per barrel.
Plans for the surprise meeting renewed optimism that a truce may be in the offing after an intense price war between the Saudi-led group and Russia sent crude prices tumbling last month, hurting all exporters already reeling from an imminent sharp drop in demand as the global economy is set to shrink this year.
Russian President Vladimir Putin’s on Friday blamed the collapse in oil prices on Saudi Arabia pulling out of the more than 3-year-old OPEC plus deal, along with its increase in production and agreements for discounts, all of which exacerbated the blow from the coronavirus.
Saudi Arabia lashed back. In a statement Saturday, Saudi Foreign Minister Prince Faisal bin Farhan reportedly said Russian President Vladimir Putin’s comments were “devoid of truth.”
Saudi Arabia energy minister Prince Abdulaziz bin Salman also issued a statement Saturday saying comments from Russia’s energy minister Alexander Novak “were categorically false and contrary to fact.”
The statement said the Saudi minister “expressed his surprise at the attempts to bring Saudi Arabia into hostilities against the shale oil industry.” The minister noted that Saudi Arabia was a major investor in the U.S. oil sector.
President Trump recently met with US oil executives when he emphasized that he remained hopeful that the Saudis and Russians will reach a compromise to end the crude oil price war although US oil industry is divided on whether it could or should contribute to production cuts to stabilize prices.
The American Petroleum Industry opposes cuts, saying such a move would harm the U.S. industry.
OPEC has invited the Texas commission to participate in its June meeting, and Ryan Sitton, one of the three members of the Texas Railroad Commission, said that the state would consider participating in such a deal.
Brent had fallen over 50 percent since January with the coronavirus-driven lockdowns in China, Europe and the United States leading to fallen oil demand.