OPEC members brace for protracted price war but still hope for a deal with Russia

Saudi Arabia and Russia have launched their initial salvos in what looks to be a pitched battle for market share, but many OPEC members are still hoping that cooler heads will prevail and that collapsing oil prices will bring everyone back to the table.

"It's still too early" to throw in the towel on the OPEC-Russia alliance following the most recent discord, one Gulf delegate told S&P Global Platts. "But hopefully Russia will come around after taking some time."

Oil prices have cratered since OPEC and Russia failed to agree Friday on production curbs aimed at supporting an oil market hit by the coronavirus' impact on the global economy.

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Russian energy minister Alexander Novak, who favored a gradual exit from the OPEC+ output cuts, said that with no deal agreed, countries would be free to pump at will once their production quotas expire at the end of March.

That prompted Saudi Arabia, which had lobbied for a proposal seeking to almost double the OPEC+ cuts, to immediately slash its official selling prices for its crude exports, in what many market watchers see as the beginning of a race-to-the-bottom price war.

Several OPEC members, who were largely bystanders in the Saudi-Russia standoff, said their governments were reacting with shock and dismay Monday as oil prices took their biggest hit in nearly three decades.

One source said that if there is any hope of stemming the slide, whether through a chastened OPEC+ reunion or by an OPEC production cut on its own, it would likely take intensive face-to-face diplomacy between ministers or even heads of state.

"With these prices and the massive uncertainties, [they need to] travel around and try to build some bridges," the source said.

Still others said their governments were bracing for a protracted price war, as happened in 1997 when Saudi Arabia flooded the market in response to the flouting of quotas by other OPEC members, notably Venezuela.

"We need some time to convince the Saudis and Russians to maintain the channels of discussion," one delegate said. "This is a really tough job."

A declaration signed by ministers at the OPEC+ meeting last week and seen by Platts reaffirmed that members would continue to consult on the oil market and preserved the advisory Joint Ministerial Monitoring Committee, but did not set any meeting dates. OPEC ministers, without their non-OPEC counterparts, are next scheduled to gather June 9 in Vienna.