At 11:48 a.m. EST on March 6, WTI Crude was plunging by 8.5% at $42.00 and Brent Crude was plummeting by 8.72% at $45.63.
Oil prices hit their lowest level since 2017, the year in which OPEC and its non-OPEC allies led by Russia began their production cut pact to try to erase the glut on the market and prop up oil prices. The pact has been extended several times since it was launched in January 2017, most recently in December 2019 for 3 months to the end of March.
But this time around, it looks like the divide between the two leading OPEC and non-OPEC producers, Saudi Arabia and Russia, is too wide to bridge.
On March 5, OPEC’s energy ministers met and recommended that the OPEC+ partners extend the current cuts through the end of 2020 and deepen those cuts by 1.5 million bpd in Q2 in response to the slump in demand due to the coronavirus outbreak. Later on March 5, OPEC ministers met again and decided that the 1.5 million bpd additional cut should not be only for Q2 but for the rest of 2020 as well.
But come March 6 and the talks between OPEC and its non-OPEC partners led by Russia became very difficult and neither side was willing to give in. Russia continued to insist that no additional cuts should be made, while OPEC and its leader Saudi Arabia insisted on further cuts and on ‘no plan B’ if Russia is not on board.
Reports started to emerge from the Vienna meeting on March 6 that the OPEC+ partners have failed to agree on deeper cuts, as wanted by OPEC, because of Russia’s continued resistance to join additional cuts, which would hurt the production plans of the major Russian oil companies.
Author: Tsvetana Paraskova, Oilprice
