A new blame game involving Saudi Arabia and Russia -- the world's second and third largest oil producers -- plus the postponement of Monday's key OPEC meeting to Thursday is threatening to crater oil prices to well below $20 a barrel, perhaps as early as Monday.
The postponement effectively destroys the claim of President Donald Trump he had convinced Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman to slash their oil production by an impossible 15 million barrels per day (bpd).
Analysts said the postponement of Monday's meeting, which was to have been a virtual one over the internet, will likely cause oil prices to nosedive this week after an astonishing and record-breaking rally Thursday. U.S. oil skyrocketed 25% for its best day on record. It jumped another 12% on Friday and ended the week on Saturday with a 32% surge. This unexpected surge ended a five-week-long losing streak and was the best weekly performance yet. The postponement of the virtual meeting threatens to negate these historic gains, however.
"It's probably going to crater," said John Kilduff, a Founding Partner at investment advisory firm, Again Capital LLC. "There was a lot of optimism priced into oil Thursday and Friday. With this new Saudi, Russia spat, it doesn't look like it's going to come together."
Last week's surge, however, kept West Texas Intermediate crude still down nearly 40% in the last month due to the massive demand destruction from the COVID-19 pandemic, and the price war between Saudi Arabia and Russia that ignited early March.
At its March meeting, Saudi Arabia and OPEC proposed cutting production by 1.5 million bpd in an effort to stem the demand slowdown and stabilize prices. Russia rejected the additional cuts, claiming any slash must include American shale oil producers whose overproduction was the key reason for low oil prices.
The meeting ended with no agreement, and Saudi Arabia the very next day slashed its oil prices to gain market share and punish Russia. Saudi Arabia subsequently boosted its production to a record high of more than 12 million bpd.
Analysts said the postponement of Monday's virtual meeting was likely due to Putin on Friday blaming the Saudi's for the collapse in oil prices. He said Saudi Arabia pulled out of the three-year-old OPEC+ deal, and by increasing oil production and offering huge price discounts worsened the already painful demand destruction.
A furious Saudi Arabia struck back at Putin's claim. Saudi Foreign Minister Prince Faisal bin Farhan said Putin's comments were "devoid of truth" in a harsh statement delivered Saturday. The Saudi FM also "expressed his surprise at the attempts to bring Saudi Arabia into hostilities against the shale oil industry." He said Saudi Arabia is a major investor in the U.S. oil sector.
Bin Farhan said comments by Russia's energy minister Alexander Novak about his country triggering the collapse of oil prices "were categorically false and contrary to fact."
