As of Friday, March 27, Brent crude oil is trading below $25, the coronavirus is still holding the world hostage, and the price war between Russia and Saudi Arabia is alive and kicking. While the reason for a G-20 Summit meeting last Thursday, March 26, was to discuss the challenges of COVID-19 and to form a global response, there were hopes a resolution to the drastic drop in global oil prices would be discussed. By all accounts, however, it was never mentioned.
A virtual meeting
The summit meeting, hosted this year by Riyadh and chaired by King Salman, for the first time took place virtually. The normally two-day event lasted only 90 minutes with all participants seeing each other only as a grid of talking heads on a screen. A G-20 statement reported, “We commit to do whatever it takes and to use all available policy tools to minimize the economic and social damage from the pandemic, restore global growth, maintain market stability, and strengthen resilience.” Some might hope this to include the possible ceasing of the price war. After all, the global economy often holds hands with global oil prices.
But is a truce even possible? And if a ceasing of the price war happened tomorrow, has too much damage already been done? “We are in contact with Saudi Arabia and a number of other countries. Based on these contacts we see that if the number of OPEC+ members will increase and other countries will join there is a possibility of a joint agreement to balance oil markets,” Dmitriev, head of Russia’s sovereign wealth fund, said. In a contradictory statement, Saudi Arabia announced Friday they have not had any contact with Moscow about oil production cuts. This seems more in line with claims from other OPEC+ countries that requests to return to the table have gone ignored. For the moment, at least, it looks like we are in this price war for the long haul.
No one knows for sure
With no one able to give assurance as to when the coronavirus will subside and allow energy demand to return to normal, a truce would most likely be too little, too late anyway. According to a recent article by Forbes:
You cut when you have some definitive assessment of the level of demand and a price floor to aim for. Both are in a flux. Oil futures seem destined for the $10-20 per barrel range from their current $20+ levels, and if demand for the first quarter of 2020 was pretty low, the second quarter’s might be even lower…Among other things, it suggests that many market participants have low expectations for 2020, and do not expect prices to strengthen around $40 until much later in the year.
All things considered, the price war between Russia and Suadi Arabia is not unlike the coronavirus itself. No one can accurately predict when it will be over, what the total damage will be, how long it will take to recover, or how long it will take to overcome the rising surplus.