While OPEC’s de facto leader Saudi Arabia trades blows in a war for market share with Russia after their three-year pact to cut oil supplies collapsed last week, other OPEC states are already sounding the alarm over plunging oil prices.
Crude lost as much as a third of its value this week after Friday’s meeting between OPEC and its allies, including Russia, ended in acrimony and led to scrapping all restrictions on output in a market already awash with oil.
Riyadh, the biggest OPEC producer, said it would hike its supplies to the market to a record high of 12.3 million barrels per day, about 2.6 million bpd above its current level. Russia said it would also pump more, even as the coronavirus hits demand.
Responding to the price plunge, OPEC’s second biggest producer Iraq said flooding the market would not help producers.
Iraqi Oil Minister Thamir Ghadhban said his ministry “is in contact with members inside and outside OPEC to discuss ways to prevent deterioration in oil prices.”
With most OPEC countries heavily reliant on oil income, the price rout puts a huge strain on state finances. At Monday’s low of nearly $31 a barrel, OPEC members were estimated to be losing about $500 million a day in revenues.
Algeria, which holds this year’s OPEC presidency, said on Monday that, following consultations with other producers, a “rapid decision to balance the market” was needed.
Crude prices recovered some ground on Tuesday, partly because Russia did not rule out more talks with OPEC. But, at about $37 a barrel, oil is still down 25% on its level before Friday’s talks and is down more than 40% since January.
Nigeria’s Minister of State for Petroleum Timipre Sylva told reporters that OPEC and non-OPEC countries might need to reconsider production cuts, adding that the sharp drop in oil prices could force a change in tactics.
Nigerian Finance Minister Zainab Ahmed said state spending would have to be curbed. “There will be reduced revenue on the budget and it will mean cutting the size of the budget,” she said.
Ratings agency Fitch said on Tuesday that sustained low oil prices would likely pull down sovereign ratings of crude exporting countries that have weaker finances.
OPEC states in focus included Saudi Arabia, Iraq, Nigeria and Angola, as well as non-OPEC Oman, Fitch Middle East and Africa sovereign analyst Jan Friederich told Reuters.