A three-year supply pact between the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia fell apart earlier this month after Moscow refused to support Riyadh’s plan for deeper production cuts to offset dwindling demand resulting from the coronavirus pandemic.
Saudi Arabia responded to the breakdown in relations by lowering the prices it charges for crude and pledging to pump oil next month at record levels.
The resulting supply boost has coincided with plummeting demand as governments around the world implement national lockdowns to slow the spread of the coronavirus. The twin-pronged assault on prices has sent Brent crude to a 17-year low below $25 a barrel and hammered the income of oil producers.
“There have been no contacts between Saudi Arabia and Russia energy ministers over any increase in the number of OPEC countries, nor any discussion of a joint agreement to balance oil markets,” an official from Saudi Arabia’s energy ministry said, referring to the wider grouping of oil producers.
The comment came after a senior Russian official said on Friday that a larger number of oil producers could cooperate with OPEC and Russia, in an indirect reference to the United States, the world’s biggest producer, which has never cut production.
“Joint actions by countries are needed to restore the [global] economy … They [joint actions] are also possible in the OPEC deal’s framework,” said Kirill Dmitriev, the head of Russia’s sovereign wealth fund.
Dmitriev and Energy Minister Alexander Novak were Russia’s top negotiators for the previous pact between OPEC and its allies – a grouping known as OPEC+. That deal officially expires on March 31. Dmitriev declined to say which nations could be included in a new one.
The alliance between OPEC and Russia broke down after Moscow declined to support bigger output curbs, arguing that it was too early to estimate the pandemic’s impact.
Officials and oil executives in Russia have been split on the need for cuts, with Dmitriev and Novak supporting cooperation while Igor Sechin, the head of Kremlin oil major Rosneft, has criticised supply cuts for providing a lifeline to the less competitive US shale industry.
Russian President Vladimir Putin has said little since the OPEC deal collapsed.
The idea of Washington cooperating with OPEC has long been seen as impossible, not least because of US antitrust laws. US President Donald Trump has repeatedly expressed anger with the cartel because its actions lead to higher prices at the pump.
However, Saudi Arabia’s latest move has put Washington in a difficult position. Its battle for market share has led to very low prices, but also undermined the US shale industry, which has much higher costs than Saudi or Russian production.
The US administration is facing multiple calls to save the highly leveraged shale industry, which has borrowed trillions of dollars to allow the country to become a large oil and gas exporter despite often uncompetitive costs.
A group of six US senators wrote a letter to US Secretary of State Mike Pompeo this week saying Saudi Arabia and Russia “have embarked upon economic warfare against the US” and were threatening US “energy dominance”.
They called on Saudi Arabia to quit OPEC, reverse its policy of high output, partner with the US in strategic energy projects or face consequences.
“From tariffs and other trade restrictions to investigations, safeguard actions, sanctions, and much else, the American people are not without recourse,” the senators, including John Hoeven of North Dakota and Lisa Murkowski of Alaska, said in a letter.
Two other senators from oil-producing states introduced a bill on Friday that would remove US armed forces from the kingdom.
Trump last week said he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time.
US Energy Secretary Dan Brouillette, meanwhile, told Bloomberg TV on Monday that forging a US-Saudi oil alliance was one of “many, many ideas” being floated by US policymakers.
The head of the International Energy Agency, an adviser to the US and other industrialised countries, on Thursday also called on Saudi Arabia to help stabilise the market.
Algeria, which holds the OPEC presidency at present, has called for a meeting of the group’s Economic Commission Board to be held no later than April 10 to discuss current oil market conditions.