Failure of OPEC + talks will not cancel the compromise solution.
Two days before the OPEC+ meeting scheduled for April 9, it became known that it will be held in an expanded format: representatives of seven other states that did not participate in the deal will arrive at the meeting. This attention is understandable, because the future fate of the oil market, which has sunk amid the contradictions between Russia and Saudi Arabia, depends on the outcome of the negotiations. However, so far there are no signs that the parties can find a compromise.
Argentina, Brazil, Colombia, Egypt, Indonesia, Norway, and Trinidad and Tobago are also invited to the OPEC+ meeting. There will be no US representatives at the meeting on April 9. Although both Russia and Saudi Arabia have actively advocated American participation, President Donald Trump has a special view on uniting oil-exporting countries.
“I’ve been against OPEC all my life, because what is it? It is illegal, you can call it a cartel, you can call it a monopoly,” he said the other day.
Some observers believe that the goal of the American demarche is to disrupt the deal between Russia and other OPEC+ members, led by Saudi Arabia. However, everything so far shows that the notorious “hand of Washington” has nothing to do with it: the problem is primarily in the contradictions between Moscow and Riyadh. As Bloomberg reported shortly before the meeting, the Saudis gave the Russian side an ultimatum — to reduce oil production by 1.5 million barrels per day. This is the same figure that was voiced in March when Moscow eventually decided not to extend and withdraw from the OPEC + deal.
Now the situation is complicated by the fact that the leading oil producers, except for Russia, managed to significantly increase the volume of produced raw materials in a month. Therefore, for them, the reduction in production in the future will be less noticeable. And even those countries that, like Russia, have not increased production are still on the side of Saudi Arabia. In any case, it is more profitable for them to sell their available oil at a higher cost than to compete in the market of cheap raw materials and compensate for losses from falling prices.
With the conditions that Riyadh is now offering Moscow, it is not worth counting on the success of the meeting on April 9.
The chances of reaching some kind of breakthrough agreement, although there are some, are low in principle. The formula proposed by Saudi Arabia for reducing oil production generally does not take into accounts the parameters and red lines that the Russian side officially announced last week. Among these fundamental aspects is the fact that, according to Moscow, the reduction in oil production should be calculated not from the level of April this year, but the average indicators of the first quarter of 2020. Second, the proposed deal violates the principle of equality from Russia’s point of view. Formally, it is present: the parties should reduce oil production by about the same amount. But taking into account the fact that the Russian side failed to increase production volumes, while Saudi Arabia reached a daily figure of 12 million barrels (against 9.8 million in March), it is not necessary to talk about a balanced approach.
At the same time, as the expert notes, both Moscow, Riyadh, and other participants in the deal are well aware that the current economic situation in the context of the oil crisis still requires certain steps from producers. Therefore, it is likely that even if the agreement fails on April 9, it will not become a final impasse and the parties will continue to search for a solution. Also, the information published by Bloomberg about the “ultimatum” is at odds with other speculations and statements by experts saying that this is not the only scenario considered by OPEC+ countries. There are other options, including more acceptable ones for Russia, which can be discussed either on April 9 or later.