Talks on oil cap likely to be shelved

Russia and Saudi Arabia show no sign of being ready to compromise

An OPEC and non-OPEC technical panel meeting planned for Wednesday to further discuss parameters of a crude production cap deal in Vienna is unlikely to go ahead, sources close to the event said.

A similar meeting attended by OPEC+ ministers on March 6 failed to yield any results, as a deal to reduce oil output by the Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+ that pumps over 40 percent of the world's oil, will expire at the end of this month.

OPEC had proposed deepening the production cuts by another 1.5 million barrels a day until the end of this year, but Russia and Kazakhstan opposed the proposal.

Russia and Saudi Arabia then announced plans to boost crude production by 250,000-300,000 barrels a day and by 300,000 a day to 12.3 million barrels, respectively.

Russia's state Tass News Agency reported that despite the failed talks, the OPEC+ cooperation mechanism will remain alive, particularly the ministerial committee on compliance monitoring, which will continue monitoring the market and will convene a meeting if required.

Russian Energy Minister Alexander Novak had said earlier that the country's representatives would participate in the OPEC+ technical panel meeting.

However, the meeting scheduled for Wednesday "is likely to be postponed", which suggests that there were no further steps were planned to support the market, Reuters reported.

Saudi Arabia's maneuvers in the oil market have posed tremendous challenges to the Russian economy, Russian experts said.

The failure to reach an agreement triggered a slump in oil prices on Monday, while the ruble tumbled by more than 7 percent to nearly 75.5 to the US dollar, its weakest since early 2016, the experts said.

Riyadh's actions are dictated by internal political and geopolitical reasons, said the director of the Valdai international discussion club Oleg Barabanov.

Even on the eve of the OPEC+ meeting, Saudi Arabia took a tough position, working deliberately toward disruption of an agreement.

Barabanov said the actions of the Saudis seem "irrational" due to the worsening macroeconomic situation and a fall in global oil demand.

Alexander Frolov, the Deputy Director-General of the National Energy Institute, said the United States may be involved in the latest oil crisis and may benefit from the outcome of the oil war as it may be glad to see Russia's economic showdown.

Challenges faced

This is because the US is struggling to develop its shale oil industry, which faced major challenges from Russian oil, Frolov said, adding that the shale oil companies will have a bigger market in Europe if the oil war can destroy Russia's oil production industry with low oil prices.

US oil companies earned more than $50 billion thanks to the previous 2016 OPEC+ deal, Frolov said.

As for the present oil crisis, the most likely outcome is likely to be a limited and tactical price war that lasts several weeks or months, until prices are low enough to change fundamental views in Moscow and Riyadh and force some form of compromise, said Ian Bremmer, the president of the political research think tank Eurasia Group.

The novel coronavirus spread, particularly its economic impact, is a major complicating factor that could turn the expected tactical price war into a strategic one, Bremmer stressed.

Chief Analyst at BCS Premier Anton Pokatovich said Saudi Arabia also does not welcome US shale oil into the market, so a new OPEC+ agreement will not be easy.

Pokatovich said both Saudi Arabia and Russia want to force US shale oil producers to retreat from the market.

Fitch analyst Dmitry Marinchenko said: "So, it's hard to say if Saudi Arabia will be more willing to allow Russia return to the OPEC+ group or target shale oil production."