LONDON – Oil prices dropped more than 4% on Friday on concerns that OPEC might not go ahead with steeper cuts to oil output to bolster prices after Reuters reported that Russia rejected the proposal.
Brent and WTI crude futures tumbled by nearly 6% on the news, with the close to $3 drop taking Brent crude to its lowest since July 2017 while WTI was at its weakest since December 2018.
By 1345 GMT Brent crude was down $2.27, or 4.5%, at $47.72 a barrel. U.S West Texas Intermediate (WTI) was down $2.24, or 4.9%, at $43.66.
A Russian high-level source told Reuters on Friday that Moscow would not back an OPEC call for extra reductions in oil output and would agree only to an extension of existing cuts by OPEC and its allies, a group known as OPEC+.
“What counts really is what Saudi Arabia does. If Russia joined, it will not add substantially. We need to see if OPEC goes ahead all alone,” said Olivier Jakob, of the Petromatrix consultancy.
One Middle East source said that OPEC had no intention of pursuing deeper cuts without Russia.
OPEC is pushing for an additional 1.5 million barrels per day (bpd) of cuts until the end of 2020.
Sources at the Organization of the Petroleum Exporting Countries (OPEC) confirmed Russia’s position and that a formal OPEC+ meeting has been delayed.
An OPEC+ delegate said there were “positive signs” after a separate OPEC+ meeting finished.
Non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut, OPEC ministers said. The new deal would have meant OPEC+ production curbs amounting to a total of 3.6 million bpd, or about 3.6% of global supply.
“Our balances suggest that at least 2 million bpd needs to be removed from the market during Q2 to ensure a stabilisation in oil prices,” said Bjoernar Tonhaugen, head of oil markets at Rystad Energy.
“If this results in OPEC not going through with their own proposed 1 million bpd cuts in Q2, the result … could be devastating. Brent could swiftly drop 15% to the low $40s and WTI to the high $30s in this scenario.”
Global stock markets tumbled on Friday as disruptions to business from the spreading coronavirus epidemic worsened. European shares opened sharply lower, with travel stocks bearing the brunt.
However, after marking its worst weekly performance since the 2008 financial crisis a week ago, the MSCI All-Country World Index was up 1.7% on the week. <MKTS/GLOB>
Even with the deeper cut, Goldman Sachs said the OPEC+ deal would not have prevented a global oil market surplus in the second quarter. The bank maintained its Brent price forecast at $45 a barrel in April.
“Ultimately, a rebound in demand, not supply cuts, will be the necessary catalyst for a sustainable rebound in prices,” the bank said.
Saudi Arabia’s state oil company told buyers that is has delayed publishing its crude oil official selling prices (OSP) for April until after the OPEC+ meeting.
Meanwhile, ANZ said that global oil consumption could fall by 1.6 million bpd in the first half of 2020 and contract by about 300,000 bpd for the full year.
“Growth may return in H2 (second half of 2020) but is unlikely to be enough to offset the losses,” the bank said.