Page 4 - MEOG Week 13

MEOG Commentary MEOG
Next steps in the oil price war
It is inevitable that after the dramatic fall in the price of oil attention has turned to what steps might be taken to mitigate its negative effects, which producers and traders and now facing.
market
What:
All oil producers are feeling the pinch.
Why:
The collapse of the OPEC+ deal has resulted in a dramatic fall in oil prices worldwide.
What next:
The uS is entering the fray to try to relieve the present crisis.
IT is understood that a request has been made by the president of OPEC for emergency con- sultations over tanking oil prices. Algeria, which holds the cartel’s rotating presidency, urged the secretariat last week to convene a panel to be held no later than April 10 to discuss current oil mar- ket conditions amid the coronavirus (COVID- 19) crisis and a price war launched by OPEC’s biggest member, Saudi Arabia.
However, the request has failed to gather the majority backing necessary to go ahead, said the delegate, who declined to be identified, as the group’s discussions are private. Riyadh is among those opposing the idea. Saudi Arabia said on Friday that it was not in talks with Russia to sta- bilise crude prices despite overtures from Mos- cow and mounting pressure from Washington to call a truce in the oil price war.
“There have been no contacts between Saudi Arabian and Russian energy ministers over any increase in the number of OPEC countries, nor any discussion of a joint agreement to balance oil markets,” an official from Saudi Arabia’s energy ministry said, referring to the wider grouping of oil producers.
The comment came after a senior Russian official said on Friday that a larger number of oil producers could co-operate with OPEC and Russia, in an indirect reference to the US, the world’s biggest producer, which has never cut production.
“Joint actions by countries are needed to restore the [global] economy ... They are also possible in the OPEC deal’s framework,” said Kirill Dmitriev, the head of Russia’s sovereign wealth fund.
Dmitriev and Energy Minister Alexander Novak were Russia’s top negotiators for the previous pact between OPEC and its allies - a grouping known as OPEC+. That deal officially expires on March 31. Dmitriev declined to say which nations could be included in a new pact.
Officials and oil executives in Russia have been split on the need for cuts, with Dmitriev and Novak supporting co-operation, while Igor Sechin, the head of Kremlin oil major Rosneft, has criticised supply cuts for providing a lifeline to the less competitive US shale industry.
A three-year supply pact between the Sau- di-led OPEC and its allies led by Russia fell apart earlier this month after Moscow refused to sup- port Riyadh’s plan for deeper production cuts
to offset dwindling demand resulting from the coronavirus pandemic.
Saudi Arabia responded to the breakdown in relations by lowering the prices it charges for crude and pledging to pump oil in April at record levels.
Yet other members are not convinced of the purpose of the session requested by Algeria, as the stand-off between Riyadh and Moscow needs to be resolved by their respective leaders.
economic warfare
The idea of Washington co-operating with OPEC has long been seen as impossible, not least because of US antitrust laws. US President Donald Trump has repeatedly expressed anger with the cartel because its actions lead to higher prices at the pump.
However, Saudi Arabia’s latest move has put Washington in a difficult position. Its battle for market share has led to very low prices, and will also undermine the US shale industry, which has much higher costs than Saudi or Russian production.
The US administration is facing multiple calls to save the highly leveraged shale indus- try, which has borrowed trillions of dollars to allow the country to become a large oil and gas exporter despite often uncompetitive costs.
A group of six US senators wrote a letter to US Secretary of State Mike Pompeo last week saying Saudi Arabia and Russia “have embarked upon economic warfare against the US” and were threatening US “energy dominance”. They called on Saudi Arabia to quit OPEC, reverse its policy of high output, partner with the US in strategic energy projects or face consequences.
Two other senators from oil-producing states introduced a bill on Friday that would remove US armed forces from the kingdom.
Trump last week said he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time. US Energy Secre- tary Dan Brouillette, meanwhile, told Bloomb- erg TV on Monday that forging a US-Saudi oil alliance was one of “many, many ideas” being floated by US policymakers.
The head of the International Energy Agency (IEA), an adviser to the US and other industrial- ised countries, on Thursday also called on Saudi Arabia to help stabilise the market.
The Trump administration is leaning on
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w w w . N E W S B A S E . c o m Week 13 01•April•2020