By Barani Krishnan
Investing.com - Crude prices fell as much as 6% on Monday on anxiety that oil titans Russia and Saudi Arabia were still arguing about who between them caused the market to collapse rather than agreeing on production cuts that would help.
Yet the market avoided another freefall after the chief executive of Russia’s sovereign wealth fund said the two countries were indeed “very, very close” to a deal to rescue the oil market.
“I think the whole market understands that this deal is important and it will bring lots of stability, so much important stability to the market, and we are very close,” Kirill Dmitriev, CEO of the Russian Direct Investment Fund, told CNBC in an interview.
A virtual meeting between OPEC and its allies led by Russia was scheduled to happen on Monday. But it was now reportedly pushed forward to Thursday after fresh round of apparent bickering between Russian President Vladimir Putin and Saudi Energy Minister Abdulaziz bin Salman on was to blame for the production-and-price warfare between the two countries that added to the demand destruction for oil brought on by the Covid-19 pandemic.
Reuters, quoting three OPEC sources, reported that Thursday’s meeting was “conditioned upon the United States joining in production cuts”.
West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled Friday's trade settled down $2.26, or 8%, at $26.08 per barrel.
WTI rose by more than $8, or a record 32% last week, rebounding from 18-year lows of $19.27, after U.S. President Donald Trump tweeted that he had got Moscow and Riyadh to agree to production cuts of as much as 15 million barrels per day — exactly what the International Energy Agency estimated as the surplus to land on the market from this month.
Brent, the London-traded global benchmark for crude, settled down $1.06, or 3.1%, at $33.05 per barrel. Brent rose more than $9, or 37%, for all of last week.
Ahead of the OPEC video meeting, the Wall Street Journal reported that Saudi Arabia and other members of the cartel were working to convince non-OPEC producers that there will be very little space left to store their oil if they don’t curb production.
Scarcity of oil storage is growing critical as traders scramble for empty vaults in remote corners of the oil world like Morocco, Malta and the Caribbean.
But while urging for world action, the Saudis have continued ramping up their production.
As of April 2, nearly 750,000 barrels of Saudi Arabia’s per day loadings were on the water with nowhere to go, according to Kayrros.
International Energy Agency Executive Director Fatih Birol said last week the current supply glut threatens to overwhelm effective global storage capacity in just 10-15 days.
If oil can’t be sold or stored, it can’t be produced at much higher rates, and there have to be rampant shut-ins by high-cost producers like U.S. shale drillers, who typically turn out a barrel at $35 and above. The Saudis, whose costs are as low as $3 per barrel, are likely to hold off as long as possible.
Many suspect the Saudi-Russian production battle is actually a proxy war on U.S. shale crude which has gained some 4 million barrels in output and 3.5 million barrels in exports over the last three years at the expense of production cuts carried out by Riyadh and Moscow.
Trump warned last week that he might resort to import tariffs that could hurt Saudi and Russian oil being brought into the U.S., unless the two titans cut output immediately. So far, his threat actually doesn’t seem to have shaken them.
U.S. Energy Secretary Dan Brouillette told Fox on Monday that “all options are on the table” when asked about the tariffs, adding that the Trump administration will fight “any predatory” attempt against shale crude or American energy businesses.