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Highlights

Future of OPEC+ alliance in question

Production quotas to expire at end of March

Meeting marked by distrust, discord

Vienna — OPEC's gambit to pressure Russia into deeper production cuts failed spectacularly Friday and now both sides are reaping the penalties, with oil prices taking their biggest one-day hit in five years.

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Eight hours of talks at the OPEC secretariat in Vienna failed to move Russian energy minister Alexander Novak to back the supply curbs sought so keenly by Saudi Arabia and other key producers to offset the coronavirus outbreak's bite out of global oil demand.

With no deal agreed, the 23-country OPEC+ coalition's current production quotas will expire at the end of the month, potentially unleashing a price-tanking market share battle.

Novak and Saudi counterpart Prince Abdulaziz bin Salman were coy on their country's plans.

"We will keep you wondering," the prince told reporters after the meeting, when asked if the kingdom would pump more crude.

Novak said he would have to consult with Russian oil companies, who have been champing at the bit to have their production restraints eased.

OPEC pumped 27.99 million b/d of crude in February, with Saudi Arabia contributing 9.69 million b/d, according to the latest S&P Global Platts survey of OPEC output. Russia, the primary non-OPEC country in the OPEC+ alliance, produced 11.29 million b/d of crude and condensate in the month, according to official figures.

Front-month ICE Brent futures settled $4.72 (9.4%) lower at $45.27/b.

Saudi Arabia and Russia were the key drivers behind forging OPEC+ in late 2016, teaming up to end a three-year slump in oil prices with a series of supply agreements aimed at reducing inventory levels that had swelled to historical highs. Friday may have seen the disintegration of the alliance, if not formally, then in practice.

A declaration signed by ministers at the meeting and seen by Platts reaffirmed that OPEC+ members would continue to consult on the oil market and preserved the advisory Joint Ministerial Monitoring Committee, but did not set any meeting dates. OPEC ministers, without their non-OPEC counterparts, are next scheduled to gather June 9 in Vienna.

Not all members of the coalition were ready to give up. Many were still holding the door open for Russia, and some suggested the JMMC could convene later this month.

Iranian oil minister Bijan Zanganeh suggested a cooling off period before another meeting.

"I believe we can reach an agreement, but we need more time to cool down the situation," he said.

UAE energy minister Suhail al-Mazrouei, whom sources said had pleaded with the room to make a deal, echoed those sentiments.

"It's up to Russia now when they make up their mind. I think they need more time," Mazrouei said. "I'm hopeful that we will come back one day before June, hopefully when Russia realizes that we need to do something."

Novak, for his part, told Russia's Prime news agency that he could not say when OPEC+ would next meet.

"We need to see how the coronavirus situation develops, with global figures of supply and demand," he said. "We will see how other countries will act in the market in terms of production and consumption."

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HARD FEELINGS

The downfall began with a bold strategic move by OPEC unveiled late Thursday after an impromptu meeting of ministers in Prince Abdulaziz's hotel suite.

OPEC agreed to slash its production quotas by 1 million b/d, contingent on Russia and nine other non-OPEC allies agreeing to shrink theirs by 500,000 b/d, for the rest of the year. The total 1.5 million b/d in cuts would have come on top of the existing 1.7 million b/d cut agreement, which would be extended.

Novak, who has insisted that any temporary moves now would not have any long-term impact on the market, did not accept the proposal, with sources saying he was upset at being cornered into being the decision-maker. The minister offered to merely extend the 1.7 million b/d cut through the end of June, which OPEC officials deemed insufficient.

Russia's stance dismayed many OPEC members, particularly Saudi Arabia, who had been pushing for decisive action to instill market confidence in the alliance's efforts to confront the demand destruction caused by the coronavirus outbreak.

A growing number of analysts are forecasting that global oil demand could contract in 2020 for the first time since the financial crisis of 2009.

OPEC Secretary General Mohammad Barkindo said the group was extremely close to an agreement. OPEC itself was unanimous on the need for 1.5 million b/d in deeper cuts for the second quarter at least and an extension of the 1.7 million b/d cuts until the end of the year, he said.

"But we had to defer to some of the countries, which is one or two, that need to hold further consultations to take what we agreed on to their capitals to show what we agreed on," he said.

Distrust and hard feelings were evident on both sides, sources said. Prince Abdulaziz reportedly told meeting attendees that "today will be a regretful day" for their failure to act.

Ministers spent Friday morning in a whirlwind of bilateral and multilateral discussions, delaying the official OPEC+ ministerial meeting from its scheduled 10 am (0900 GMT) start time for more than six hours. All the while, they saw the oil price tumble as reports of disunity leaked from the secretariat.

By the time the meeting actually began, any prospects of a deal were effectively dead, sources said, Novak and Prince Abdulaziz having talked themselves in circles for long enough.

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