US, Russian oil officials to meet as Brent crude hits 18-year low

Prices of global oil benchmark Brent crude nosedived to the cheapest levels in 18 years on Monday, while United States benchmark West Texas Intermediate (WTI) crude briefly fell below $20 per barrel, as plummeting demand from coronavirus disruptions and another salvo from Saudi Arabia in its oil price war pounded the sector.

US President Donald Trump and Russian President Vladimir Putin agreed during a call on Monday to have their top energy officials meet to discuss the crash in global oil markets, according to the Kremlin. Earlier in the day, Trump called the oil price war between Saudi Arabia and Russia “crazy”.

The recent crash in oil prices – which has seen the major benchmarks record losses for five straight weeks – has threatened higher-cost oil drillers in the US and around the globe with bankruptcy. 

Brent futures fell $2.43, or 9.8 percent, to $22.50 a barrel by 14:40 GMT, while US WTI crude fell $1.22, or 5.7 percent, to $20.29. Earlier in the session, Brent fell as low as $21.65 per barrel, its lowest since March 2002, while WTI dropped to $19.85.

The nearly two-decade low is being fed by a coronavirus demand hit, worsened by an oil price war between the world’s top exporters of crude.

Saudi Arabia and Russia have promised to flood the market with oil in April after talks collapsed earlier this month between the Saudi-led Organization of the Petroleum Exporting Countries and its allies led by Russia – a grouping known as OPEC+.

Riyahd said it would lift all restrictions on its oil output after Moscow refused to support a deep output cut.

In an interview with Fox News Channel on Monday, Trump said: “I never thought I’d be saying that maybe we have to have an oil [price] increase, because we do.”

“The price is so low now they’re fighting like crazy over, over distribution and over how many barrels to let go,” he added.

Oil analysts, however, say there is only so much the US can do.

“There have been plenty of times the US has pushed the Saudis to change their oil policy. How effective that has been is another story,” Gregory Gause, head of the International Affairs Department at Texas A&M University, told Al Jazeera.

He recalled the US exercising its influence over Saudi oil policy in 1986, when the administration of then-President Ronald Reagan pushed the Saudis to limit production and push prices up.

“At the time, the Saudi strategy of opening the taps to discipline other OPEC members had forced prices down substantially, and the effect on the US oil industry was severe,” said Gause. “Vice President Bush was sent to Riyadh to push the Saudis to work in the opposite direction.”

This time, it is US shale oil producers that are suffering. With crude prices so low, it is now costing oil firms to stay active, some analysts say. Production will have to be halted as storage capacities fill up to the brim.

US stockpiles at Cushing in Oklahoma rose more than four million barrels last week, the biggest increase in over 10 years, according to data provider Genscape. For this reason, supertanker freight rates continued to rise for the second time this month alone.

Goldman Sachs analysts warned on Monday that demands from commuters and airlines, which account for about 16 million barrels per day of global consumption, may never return to previous levels.

And despite calls from Trump to quit the oil price war, Saudi Arabia and Russia have yet to heed it. Both sides have indicated that they can wait out a price crash.

Riyadh said on Monday that it plans to boost its oil exports to 10.6 million barrels per day from May.

“The Russians and Saudis appear to be leveraging rock-bottom oil prices to impose a downsizing of the US shale oil industry,” Jim Krane, energy analyst at Rice University’s Baker Institute, told Al Jazeera.

“From their perspective, shale has been free riding on sacrifices made by other producers. Free riding was never going to be a viable long-term strategy for shale,” Krane said. “At some point, the Saudis were going to have to fight back.”