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OPEC unveils plan to tackle coronavirus oil market crisis but asks Russia to make the call

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OPEC unveils plan to tackle coronavirus oil market crisis but asks Russia to make the call


1.5 million b/d OPEC+ cut proposal depends on Russian approval

Non-OPEC ministers to meet with OPEC on Friday

OPEC shrinks demand growth forecast to 480,000 b/d

Saudi Arabia has put all of its eggs in Vladimir Putin's basket, allowing the Russian president to decide the course of the OPEC+ alliance's production policy and, indeed, whether their oil market partnership will endure.

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OPEC on Thursday announced a plan to slash another 1 million b/d of its own crude oil production and to ask Russia and nine other non-OPEC countries to cut 500,000 b/d of their output through the end of the year, to combat the demand destruction caused by the coronavirus epidemic.

The deal and its total 1.5 million b/d in new supply curbs -- on top of the coalition's existing 1.7 million b/d cuts -- is fully contingent on Russia's approval, ministers said, with Iran's Bijan Zanganeh saying that "we have no Plan B."

"Tomorrow, everything depends on non-OPEC agreement," he said. "If they don't accept it, we have no deal."

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Saudi energy minister Prince Abdulaziz bin Salman, a principle architect of the plan, which was forged while Russian counterpart Alexander Novak was in Moscow for consultations with Putin, would only say: "We'll see tomorrow."

Novak is scheduled to return to Vienna on Friday for talks with OPEC, along with the other non-OPEC ministers. Novak left negotiations in the Austrian capital on Wednesday, refusing to endorse any plan to deepen the coalition's output cuts.

By announcing an agreement without Russia's sign-off, OPEC appears to be pressuring Russia to commit to a deal and handing over any potential blame for OPEC+'s collapse to Putin and Novak.

But it also gives Moscow significant leverage over the group, most of whom badly want to prop up slumping oil prices and need Russia's market clout to make any production pact credible.

Several OPEC delegates told S&P Global Platts that they were expecting a day of difficult talks.

"They'll probably be in there for hours," one said on condition of anonymity.

The plan did not include any details of how quotas would be allocated, which ministers said would be hashed out Friday.

Ultimately any deal will come down to what concessions Russia may be seeking from Saudi Arabia and other key members of OPEC, in what one delegate described as "horse trading" for project investments or other political favors.

Saudi Arabia has been pushing for deeper cuts to backstop the market since early February, only to be rebuffed by Russia at every turn so far.


In its communique of the meeting, which lasted far shorter than most OPEC summits tend to go for, the organization said it had downgraded its forecast of 2020 global oil demand growth to 480,000 b/d, down from 1.1 million b/d seen in December 2019.

"The COVID-19 outbreak has had a major adverse impact on global economic and oil demand forecasts in 2020, particularly for the first and second quarters.... moreover, the unprecedented situation, and the ever-shifting market dynamics, means risks are skewed to the downside," OPEC said.

Other market watchers are far more bearish.

S&P Global Platts Analytics estimates 2020 demand growth at just 240,000 b/d with a likelihood that it could be further revised down.

Some analysts have even forecast a contraction in demand, which would be the first since the financial crisis in 2009.

Privately, some OPEC members were unsure whether a 1.5 million b/d production cut would be sufficient, according to sources.

Speculation of whether the OPEC+ alliance would seek to surprise the market by not only clinching a deal but increasing the cut even further -- by up to 600,000 b/d -- was running rampant, though ministers and delegates declined to be drawn on the rumors.

An OPEC cut of 1 million b/d would already bring the bloc's production down to 2003 levels of about 27.4 million b/d, according to Platts estimates, before Angola, Equatorial Guinea and Congo were members, and when Iraqi output was shut in after the US-led invasion that toppled President Saddam Hussein.

At the time, global oil consumption only totaled around 78 million b/d, compared to the roughly 100 million b/d market that exists today.

OPEC and Russia will be trying to align their market calculations Friday, in what will be a test of petrodiplomacy.

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