Saudi-Russia Oil Price War Deal Takes Shape, but Market Still Faces Coronavirus Pain

Oil producing nations will meet Thursday in an aim to end the costly Saudi Arabia-Russia price war that has sent oil prices to historic lows, upending the market and pushing some American producers to the brink of bankruptcy.

The Saudi-dominated Organization of the Petroleum Exporting Countries (OPEC) will hold a video call with Russian representatives in an attempt to resolve the dispute which erupted in March when Moscow split with Riyadh on proposed production caps.

Reuters reported Thursday's video conference could result in an agreement to cut between 10 million and 15 million barrels per day, the largest ever cut by OPEC nations, bringing the conflict to an end and stabilizing prices.

Hopes of a deal boosted Brent crude prices 1.2 percent to $33.25 a barrel, while U.S. West Texas Intermediate crude futures rose 3.3 percent to $25.91 a barrel, having earlier increased by up to 6.1 percent.

Russia signaled its willingness to cut production by some 1.6 million barrels per day, according to Bloomberg. The Algerian energy minister said he expected the call to be "fruitful," according to Reuters.

The end of the price war would be a welcome development for producers. Russia had been cooperating with OPEC under the OPEC-plus deal for three years, but refused Saudi-led cuts designed to boost the price of oil in March amid falling demand and oversupply, exacerbated by the coronavirus economic slowdown.

Experts suggested Russia may have been trying to take a bigger chunk of the Asian market by refusing production caps, or trying to force out American shale firms, who have upended the market in recent years and made the U.S. the world's leading oil producer.

In response, the Saudis flooded the market with oil in the hope of crashing oil prices and forcing Moscow back to the table.

But even if a deal is reached, oil producers still face an unprecedented global economic crisis and subsequently sluggish demand. The coronavirus pandemic is still roiling the world's major economies, many of which remain under government-enforced lockdown.

Oil demand could fall by another 30 percent, Reuters reported, even from already historic lows. Since the start of this year, crude has halved in value. Plus with demand low, countries are expanding their stockpiles of oil ready for an economic recovery. In the U.S. for example, oil stock increased by 15.2 million barrels over the past week, the largest historical weekly rise.

Lack of demand has even raised fears that nations and firms will actually run out of oil storage space. Industry analyst IHS Markit has warned that the first half of 2020 will see an increase of 1.8 billion in global oil inventories, though there is only storage space for some 1.6 billion.

American oil producers have been pushing President Donald Trump to help end the price war. The president said he has been speaking with both Russian President Vladimir Putin and Saudi Crown Prince Mohamed bin Salman, and suggested the conflict would soon end. Trump has also touted the low price of oil as a win for American consumers.

OPEC, oil, Russia, Saudi Arabia, coronavirus, war
Red Cross medics measure the temperature of participants of the 178th Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna on March 5. ALEX HALADA/AFP via Getty Images/Getty