The three-year agreement between OPEC and Russia ended with a sharp attitude after Moscow refused to support deeper oil cuts to cope with the coronavirus eruption, and OPEC lifted all limits in its production on Friday.
Brent has lost nearly a third of its value this year, and its lowest value has fallen to $ 45 a barrel since 2017. It has put pressure on oil-dependent countries and many oil companies as the global economy has been shaken by the virus outbreak.
Russian Energy Minister Alexander Novak said on Friday that Russia has no oil production agreement between and members of OPEC oil producing countries and its allies, and that it will continue to monitor the market situation of the OPEC + nations group.
“Given the decision taken today, neither we nor OPEC or non-OPEC member countries have to make oil production cuts as of April 1 of this year,” said Novak.
Failure of oil negotiations can have more comprehensive results. It greatly undermines the Russian-Saudi financial and political rapprochement. Higher oil prices and geopolitical imbalances are likely to occur.
Beyond the ties of Moscow and Riyadh, fluctuating oil prices will put pressure on U.S. gas producers whose production costs are much higher than those of Russian and Saudi production.
OPEC + negotiations, which collapsed after reacting an effective ultimatum to Russia on Thursday, offer the option of much larger cuts than expected, or an independence advice to all producers.
Forecasts and hopes for 2020 demand growth have diminished, but Moscow has long argued that it is too early to assess this impact, and has given the same message on Friday, without minding the pressures.
OPEC ministers said on Thursday they backed an additional 1.5 million barrels per day (bpd) of oil cuts until the end of 2020, in addition to rolling over existing cuts of 2.1 million bpd. That would have meant removing a total of about 3.6 million bpd from the market, or 3.6% of global supply.
Moscow rejected the increase proposal on Friday, saying it was willing to extend the current OPEC + 2.1 million bpd cuts expected to end in late March. In response, OPEC even refused to extend the current cuts as a counter reaction.
The collapse of the agreement means that OPEC members and non-OPEC producers can produce as much as they want, although theoretically the production possibilities are stronger than demand.
As a result, it would not be wrong to say that this situation is an unexpected development that is even below the worst scenarios and that could trigger one of the most serious oil price crises in history.