Covid-19: Vladimir Putin agrees to deep cuts as markets brace for price rebound

Dubai - Russian president proposes to cut combined oil production by around 10 million barrels per day, while blaming the collapse in oil prices on Saudi Arabia.

Russian President Vladimir Putin, finally succumbing to mounting pressure from the Opec and the US after a protracted standoff that has sent oil prices reeling in a debilitating price war, said on Friday he was ready for deep oil production cuts, a move that would have far-reaching positive implications on the oil market by propping up prices and reviving the fortunes of oil exporters.
Putin, speaking in a televised video conference with Russian government officials and domestic oil producers, proposed to cut combined oil production by around 10 million barrels per day, or around 10 per cent of global output, while firmly putting the blame for the collapse in oil prices on Saudi Arabia.
Oil prices hit an 18-year low following the failure of the Opec and other large oil producers led by Russia, a grouping known as Opec+, to extend their deal on output curbs last month.Putin's dramatic change of tack from his unyielding stance of non-cooperation with the Opec in further output cuts came in the wake of a truce brokered by US President Donald Trump ahead of the upcoming Opec plus meeting scheduled for April 6.
"Unfortunately, our partners from Saudi Arabia didn't agree to extend the deal on current conditions, effectively withdrew from the deal and announced significant additional discounts for their oil," Putin alleged.
"This, of course, at the time of a sharp fall in demand, had an additional impact on the decline of oil prices and still continues to influence the situation in the market."
Putin also said Russia was ready for cooperation with the United States, the world's largest oil producer, which is not part of the Opec+ group.
The Russian president said Moscow was comfortable with an oil price of $42  per barrel, adding that any output cuts should be made from first-quarter levels.
  With this move, market analysts are expecting a price rebound that would ensure not only market stability but also the fiscal stability for oil-exporting GCC economies who have been struggling to balance their budgets following the plummeting of oil prices by up to 28 per cent to 18-year lows over the past few weeks.
  GCC countries' fiscal breakeven oil prices range from $45.4 per barrel for Qatar to Bahrain's $93/b. While Opec's largest exporter Saudi Arabia has a fiscal breakeven price of $78.3/b, it is $68 for the UAE, $85.9 for Oman, and $49.7 for Kuwait.
 The Russian move came at a time when the oil market was bracing for a devastating price plunge, with production hikes initiated by Saudi Arabia and the UAE starting from this month amid the looming spectre of a depressing supply glut.
  As decided in March, Abu Dhabi National Oil Co. increased oil output to 4.03 million barrels per day effective April 1 from 3.52 million bpd in March, ahead of the surprise meeting of the Opec and partners on Monday to "stabilise the oil market".  
 The meeting of Opec+ group called by Saudi Arabia through video conferencing comes after a US-brokered deal that could result in both Saudi Arabia and Russia cutting output by 10 million to 15 million bpd, representing 10-15 per cent of global supply.
Adnoc's decision last month to raise output from April is in line with a similar move by Saudi Arabia to raise production to 13 million bpd  after Opec and its allies failed to reach a deal on production cuts when Russia refused to tighten supply.  Since then, oil prices have tumbled by almost 27 per cent to an 18-year low amid a fall in demand and a looming supply glut as the global economy got battered by the coronavirus pandemic.
On Thursday, President Donald Trump said he had brokered a deal that could result in Russia and Saudi Arabia cutting output, triggering an instant oil price rally. Brent crude futures surged by 7.0 per cent, or $2.10, at $32.04 per barrel on Friday.
Analysts at MUFG Bank said while an accord between Opec and partners is on the horizon, it is unlikely to raise oil prices near-term. Even if there is a rally, it will be short-lived.
"President Trump's oil tweet has raised prospects of a global coordinated supply cut. While the headline of unprecedented supply cuts is significant, it remains highly uncertain on whether such a production will be realised, specifically in relation to its timing, its nominal magnitude and allocation amongst countries," said Ehsan Khoman, director and head of Mena Research and Strategy, MUFG Bank.
"As such, we maintain our view that the unprecedented oil price collapse is not yet over and we don't rule out Brent sporadically testing cash-costs levels below $20/b this month, but bouncing back and ending the second quarter at $32/b as Covid-19 slowly ebbs out of the market and the ballooning oversupply begins to ease," said Khoman.
 "It is difficult to see the current Opec+ group cutting output by at least 10 million bpd - the scale of the reduction would be just too much for the group to handle," ING said in a research note.
"Saudi could drop production down to around 8.5 million bpd but would likely be reluctant to go below that level because of the desire to maintain associated gas production, while Russia will likely look for some measure of sanctions relief from Washington," said Helima Croft, global head of commodity strategy at RBC Capital Markets. 
issacjohn@khaleejtimes.com

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