OPEC+ fails to agree on massive supply cut, sending crude prices to 2017 lows

OPEC and non-OPEC allies have reportedly failed to agree on how much production to cut amid the coronavirus outbreak, with Russia refusing to give the green light to the deepest supply cuts since the global financial crisis. Oil prices slipped Friday afternoon after Reuters reported a senior high-level Russian source said Moscow would not be prepared to approve a further reduction in production. Later, Reuters also reported that OPEC and its allies had even failed to agree on rolling over existing cuts, further weighing on crude prices. Then a statement by the oil group said that it would continue discussions and made no mention of any cuts.

International benchmark Brent crude traded at $46.30 Friday afternoon, down over 7%, while U.S. West Texas Intermediate (WTI) stood at $4.42, also around 7% lower. Both benchmarks were trading at lows not seen since 2017. Brent futures have fallen more than 31% since climbing to an early January peak, with WTI down almost one-third over the same period. On Thursday, OPEC recommended additional production cuts of 1.5 million barrels per day (bpd) from the beginning of next month until the end of the year. The 14-member group had scheduled a meeting on June 9 to review the policy.

The proposal was conditional on support from non-OPEC producers, including Russia. OPEC cautioned that the deal could only be applied on a pro-rata basis with core members set to cut 1 million bpd and non-OPEC partners expected to cut 500,000 bpd. The last time OPEC+ reduced supply on such a scale was in 2008 when it took 4.2 million bpd off the market to support oil prices in the wake of the financial crisis.

The oil producers first committed to curtailing their collective production policy back in 2016 in an effort to bolster prices, with the deal coming into force in January 2017. In December 2019, it was extended and the alliance agreed to curb oil output by approximately 1.7 million barrels per day. Saudi Arabia then opted to cut its own production voluntarily by an additional 400,000 b/d for three months, should fellow members stick to their commitments.

OPEC+ fails to agree on massive supply cut, sending crude prices to 2017 lows, CNBC, Mar 6