OPEC’s plans for deep and prolonged oil cuts were derailed on Friday as non-OPEC Russia refused to support the move arguing that it was too early to predict the impact of a coronavirus outbreak on global energy demand, sources told Reuters.
Failure to secure a deal between OPEC, Russia and other members of an alliance known as OPEC+, which has propped up oil prices since 2016, sent the price of benchmark crude into a tailspin.
Brent has lost almost a third of its value this year, tumbling to $47 a barrel, putting oil-dependent nations under heavy strain and putting many US shale and other energy companies in severe distress.
“The deal is dead,” one OPEC source said.
OPEC sources told Reuters that Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries and the group’s biggest crude producer, had failed to find a compromise with Russia in talks on Friday.
As a result, the existing deal for output cuts will expire in March, so OPEC members and non-OPEC producers can then in theory pump at will in an already oversupplied market, sources said.
Oil prices were down more than 6% at $47 per barrel.
OPEC ministers had said on Thursday that the coronavirus outbreak created an “unprecedented situation” that demanded action, as measures to stop the virus spreading dampens global economic activity and oil demand.
Forecasts for 2020 demand growth have been slashed but Moscow has long argued it was too early to assess the impact and sources said Russian Energy Minister Alexander Novak delivered the same message on Friday.
OPEC ministers said on Thursday they backed an additional 1.5 million barrels per day (bpd) of oil cuts until the end of 2020, equal to around 1.5 percent of global demand, a much bigger and more extended move than expected.
They also called for extending existing OPEC+ cuts of 2.1 million bpd, meaning the proposed combined total of the cuts envisaged would have been 3.6 million bpd or about 3.6% of global supplies.
But they made the proposal conditional on Russia and other non-OPEC producers backing the curbs.
Novak, who held bilateral discussions with his Saudi counterpart Prince Abdulaziz bin Salman, has made no public statements about the oil cuts during his trips to and from Vienna this week.
The Kremlin said on Friday Russian President Vladimir Putin had no plans to talk to the Saudi leadership, an announcement that dashed hopes that a deal could be salvaged at the very top.
Inside the OPEC headquarters informal consultations continued for more than six hours, as the official meeting of OPEC+ ministers was repeatedly delayed from 0900 GMT.
The powerful OPEC group of oil producers and its allies in December reached a deal to cut production by 500,000 barrels per day in a bid to stem prices which have been under pressure from abundant reserves and weak global economic growth.
It ended with a deal for a cut effective as of January 1 which sets an output target 1.7 million barrels per day lower than October 2018 levels, with Saudi Arabia and Russia, the world’s second-largest oil producer and a non-OPEC member, making almost half the additional reductions between them.