A five per cent reduction in oil production by Russian Federation, a non-Opec producer and the world’s top producer, would represent a 500,000 barrels per day reduction in output and, along with Opec, could immediately reduce surplus global supplies by 1 million bpd. The relief rally was triggered by the prospect of an alliance between Russia, Saudi Arabia and further OPEC countries to cut output.
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Also supporting the price surge were comments by a senior Gulf OPEC delegate that Gulf countries and Saudi Arabia are willing to cooperate on any action to stabilize the oil market.
But analysts at Barclays Capital were unimpressed: “We remain highly sceptical that such a meeting will result in credible cuts in supply; thus, we see this as nothing more than an attempt to shift market sentiment, and we do not expect that it will change the physical market imbalance”.
Russia’s energy ministry earlier this week convened a meeting with the country’s industry leaders to discuss possible coordination with OPEC countries.
Global benchmark Brent crude futures extended gains on Friday to put them on track for a weekly rise of over 6 per cent, boosted by hopes of a deal among oil-producing countries to tackle a growing supply glut. Although no firm date has been set for formal talks, bilateral discussions already have taken place with Qatar playing an active role, sources close to talks have told Breakingviews.
The United States Oil Fund LP (ETF) (NYSE: USO) was up 5.3 percent at $9.67, while VelocityShares 3X Inverse Crude ETN was down more than 16 percent.
Strong U.S. labor figures and potential cooperation between Russian Federation and some OPEC members pushed crude prices well into the black in early Thursday trading.
Russian Deputy Prime Minister Arkady Dvorkovich on Friday played down expectations Russia could coordinate with OPEC to arrest the fall in oil prices by reducing production, saying the state would not intervene to balance the market.
Mr. Novak said there was no decision yet as to whether the meeting, proposed by Venezuela, would be attended by ministers or lower level officials.
Even global heavyweight Saudi Arabia felt the economic pinch, logging in a record budget deficit of some $100 billion.
“There are very many questions, on checking cuts, from what base to count from”.
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The repercussions of oil’s plunge are huge, with some oil-rich nations forced to devalue their currencies – Russia’s rouble hit an all-time low.
