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OPEC+ talks ended in dramatic failure, signaling the possible end of a diplomatic alliance between Saudi Arabia and Russia that has underpinned crude prices and changed the balance of power in the Middle East.
Oil prices slumped after Russia refused to bend to the will of Saudi Arabia even after OPEC members raised the stakes of their gamble in a late-night meeting at a Vienna hotel.
Saudi Arabia wanted to slash production to offset the hit to demand from the coronavirus. But Moscow had a different idea. Russia’s budget is more resilient to low prices than its Middle Eastern allies, and it’s betting that weak crude values will help wipe out competitors that produce U.S. shale.
It’s bad news for energy giants like ExxonMobil Corp., resource-dependent countries from Latin America to Asia, and companies like BP Plc trying to reinvent themselves as greener producers. Low prices will be a stimulus for some economies, though, a welcome one in the face of the raging virus.
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Formally, the OPEC+ meeting continued in Vienna, but delegates from various countries said there will be no deal.
The collapse of talks brings double jeopardy for the oil market, where prices are already at the lowest level in more than two years. Not only will the cartel be unable to compensate for the slump in demand due to the coronavirus, but the group’s existing 2.1 million-barrel-a day cut won’t continue beyond the end of this month.
Oil traders will now be looking for signs of whether Saudi Arabia, Russia or any of the other OPEC+ nations — unshackled from the cartel’s restrictions and with budget holes to fill — could actually increase production. It’s possible that they will, said one delegate.
Oil fell as much as 6.9% on March 6 as of 3:07 p.m. in London, the lowest since July 2017.
It’s the worst-case scenario for the Organization of Petroleum Exporting Countries, which took a high-stakes gamble that it could force Russia to join a 1.5 million-barrel supply reduction. The standoff is the biggest crisis since Saudi Arabia, Russia and more than 20 other nations created the OPEC+ alliance in 2016, forming a group that controls more than half of the world’s oil production.
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