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Economy

Russia's RDIF: New OPEC+ deal possible to address demand if others join

MOSCOW, March 27 (Reuters) – Kirill Dmitriev, the head of the Russian Direct Investment Fund (RDIF), believes a new OPEC+ deal to balance oil markets might be possible if other nations joined it and that countries should cooperate to mitigate the economic fallout from coronavirus.

“Joint actions by countries are needed to restore the(global) economy… They (joint actions) are also possible in OPEC+ (group of the Organization of Petroleum Exporting Countries and non-OPEC members) deal’s framework,” Dmitriev told Reuters in a phone interview.

Russia is a leading non-OPEC member and Saudi Arabia is a key OPEC player. A deal between OPEC and other oil producing nations to curb production to support prices fell apart earlier this month after a failure to agree how to address falling oil demand hit by coronavirus, sending global oil prices into a tailspin.

Dmitriev was one of the Russian masterminds of the original production cuts deal with OPEC.

“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,” he said.

Dmitriev declined to say who the new deal’s members should or could be.

U.S. President Donald Trump said last week he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time. (Reporting by Maria Tsvetkova, Gleb Stolyarov and Katya Golubkova Editing by Andrew Osborn)

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Business

Exclusive: Russia calls for new enlarged OPEC deal to tackle oil demand collapse

MOSCOW (Reuters) – A new OPEC+ deal to balance oil markets might be possible if other countries join in, Kirill Dmitriev, head of Russia’s sovereign wealth fund said, adding that countries should also cooperate to cushion the economic fallout from coronavirus.

A pact between the Organization of the Petroleum Exporting Countries and other producers, including Russia (known as OPEC+), to curb oil production to support prices fell apart earlier this month, sending global oil prices into a tailspin.

“Joint actions by countries are needed to restore the(global) economy… They (joint actions) are also possible in OPEC+ deal’s framework,” Dmitriev, head of the Russian Direct Investment Fund (RDIF), told Reuters in a phone interview.

Dmitriev and the Energy Minister Alexander Novak were Russia’s top negotiators in the production cut deal with OPEC. The existing deal expires on March 31.

“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 declined to say who the new deal’s members should or could be. U.S. President Donald Trump said last week he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time.

Dmitriev also said that a global economic crisis was inevitable as global debt to the world’s gross domestic product had risen to 323% as of now from 230% at a time of the previous economic crisis of 2008. The virus just triggered it, he said.

“Efforts to restore relations between Russia and the United States are now as important as ever, we will take all the efforts our side and hope the United States will also understand that this is necessary,” he said.

The fund – the Russian Direct Investment Fund – and its partners have produced 500,000 coronavirus test kits so far, but are planning to increase production to 2.5 million kits a week.

President Vladimir Putin said on Thursday he hoped Russia would defeat coronavirus in 2-3 months, as the total number of infected Russians, including some close to the country’s elite, topped 1,000, with four virus-related deaths.

Dmitriev said he believed that Russia should follow examples of South Korea and Hong Kong – which have shown how testing can limit the coronavirus spread.

For now, the fund and its partners are focusing on producing tests for companies which need them to test workers at towns where their big plants are located, so-called single-industry or “monotowns.”

Dmitriev said that within a month, test kits for fast and mass public use would be ready, so people could order them at home via taxi and delivery service apps at tech companies Yandex (YNDX.O) and Mail.Ru (MAILRq.L). Only a third of all tests will be exported.

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Business

Oil prices mixed as demand shrinks, but stimulus hopes support

MELBOURNE (Reuters) – Oil prices were mixed on Thursday following three days of gains, with the prospect of rapidly dwindling demand due to coronavirus travel bans and lockdowns offsetting hopes a U.S. $2 trillion emergency stimulus will shore up economic activity.

West Texas Intermediate (WTI) crude CLc1 futures slipped 4 cents, or 0.2%, to $24.45 as of 0018 GMT, while Brent crude LCOc1 futures rose 12 cents, or 0.4%, to $27.51.

“With lockdowns in many countries, expectations of oil demand contracting by more than 10 million barrels per day (bpd) are rising. Such demand loss will increase the supply glut,” Australia and New Zealand Banking Group analysts said in a note.

The collapse of a supply-cut pact between the Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia is set to boost oil supply, with Saudi Arabia planning to ship more than 10 million bpd from May.

“Production increases by Saudi Arabia and Russia loom, and things still look uncertain due to the ongoing price war between these two countries,” ANZ said.

U.S. crude inventories rose by 1.6 million barrels in the most recent week, the U.S. Energy Information Administration said on Wednesday, marking the ninth straight week of increases.

Products supplied, a proxy for U.S. demand, dropped nearly 10% to 19.4 million bpd, EIA data showed.

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Business

Latin America's oil producers sweat to cover costs as price war takes toll

MEXICO CITY (Reuters) – A price war between the world’s oil powerhouses is leaving many producers in Latin American struggling to cover production costs, boosting the chances of output cuts and investment delays in the coming months.

Global oil price benchmarks are suffering their steepest declines in decades in a perfect storm of falling demand in the face of the coronavirus epidemic, and surging supplies after Russia and Saudi Arabia failed to strike an agreement to cut output.

WTI crude Clc1 last week tumbled 29%, its biggest fall since the 1991 Gulf War. In the last two weeks, the U.S. benchmark lost around half its value, while Brent crude LCOc1 dropped about 40%.

Latin America’s heavy crudes, mostly indexed to these benchmarks and to Mexico’s Maya crude, accumulated a 42% fall in the same period, leaving some grades priced in the single digits, according to independent calculations.

Experts and analysts are expecting a global demand contraction of at least 10% this year.

“There will not be a fast recovery from these low prices,” said one trader of Latin American oil, who asked not to be identified. “We are now seeing demand destruction, and we all know what comes after that: layoffs, production cuts and investment postponed.”

Latin America’s average cost for lifting an oil barrel is close to $13 since 2019 excluding indirect costs and taxes, according to a Reuters calculation based on data provided by state-controlled Ecopetrol (ECO.CN) from Colombia, Petroecuador from Ecuador, Pemex from Mexico and Petrobras (PETR4.SA) from Brazil, as well as experts watching Venezuela’s PDVSA.

Until last month, those essential costs were covered by sale prices.

But the price war is drying up spot sales of Latin American heavy grades, knocking down regional benchmarks like Mexico’s Maya while dragging down Venezuela’s flagship crude Merey to as little as $8 per barrel last week.

With fuel demand in the United States – the main market for Latin American crude – declining as the nation enters shutdown, appetite for heavy oil from U.S. Gulf refiners has tumbled.

On March 18, Mexico’s Maya declined to its lowest level in 18 years, with sales to the U.S. Gulf Coast closing at below $13 per barrel according to S&P Global Platts, creating panic among neighbors.

Sending Latin America’s crudes to more distant markets such as Asia had provided some outlet for oil, but if freight tariffs increase amid a growing demand for floating storage, that avenue could also close in the coming months, traders said.

THE ONES AT RISK

With few options on the table, the most expensive production operations could be forced to cut back output or shut.

Those typically include offshore ventures like some deep and shallow water fields in Brazil, where production costs last year were between two and five times higher than the $5.6 per barrel registered for pre-salt, according to Petrobras’ data.

Also at risk are extra heavy crude that needs upgrading such as Venezuela’s output from its Orinoco Belt joint ventures and shale projects like many in Argentina.

The price slump could also have a heavy impact on countries struggling due to output inefficiencies and heavy government takes such as Mexico and Ecuador, as well as firms facing high transportation costs like those operating in Colombia.

“Petrobras should have a slower development in its investment case, while Ecopetrol and (Argentina’s state-run) YPF would struggle as they have a breakeven of $30 per barrel and $40 per barrel, respectively,” said investment firm UBS in a note to clients.

Ecuador’s Energy Minister Rene Ortiz told Reuters that Petroecuador’s production costs are between $15 and $19 per barrel. “Our production continues uninterruptedly. Exports of Oriente and Napo crudes are normal, according to schedule made before the sanitary crisis,” he said in an email.

PDVSA, Pemex and YPF did not immediately reply to requests for comment. Petrobras declined to comment.

While production cost typically refers to the cost of lifting an oil barrel to the surface, breakeven price is the sale price needed to cover all the operational and financial costs of that barrel, including lifting, workforce and taxes.

An Ecopetrol spokesman said output costs were not yet above sale prices, so no fields have been shut. The Colombian firm has a target of producing at least 745,000 barrels of oil equivalent a day in 2020.

Colombia-focused oil producer Frontera Energy (FEC.TO) on Monday announced a 60% reduction in capital expenditures for 2020 and said it would prioritize essential well workovers and critical maintenance until market conditions improve.

In Venezuela, oil sale prices and export volumes have been the most punished by the market due to the additional weight of U.S. sanctions.

Venezuelan President Nicolas Maduro this month confirmed that PDVSA, whose lifting costs are around $11 per barrel, is selling its oil below production costs. However, he did not outline any plans to curb production.

ON THE VERGE

Even though it is partially protected by a hedging program and has credit lines available, Mexico’s Pemex seems the most vulnerable among its peers in Latin America to low crude prices.

The company’s financial debt surpassed $100 billion in 2019, even after receiving capital injections from the government.

“At the current Mexican crude basket price of below $20 per barrel, Pemex upstream business (exploration and production) does not generate enough cash flow to cover operational and financial costs,” Fitch Ratings said last week.

Pemex revised its Maya price formulas down last Friday, which could bring even lower prices. So far this year, Pemex exploration and production costs – which do not include financial costs or taxes – average about $16 per barrel, according to company data.

But the firm, which is on the verge of losing its coveted investment grade rating, has full-cycle costs of more than $80 per barrel after taxes, according to Fitch.

Under pressure by legislators, Mexico’s Energy minister Rocio Nahle on Sunday said the country, which has offered to mediate between Russia and Saudi Arabia, is in talks with other producers while Pemex is applying a tax easing program.

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Business

Oil falls more than $1 as coronavirus spreads

NEW YORK (Reuters) – Oil prices fell more than $1 a barrel at the start of the trading session on Sunday, as more governments ordered lockdowns to curb the spread of the global coronavirus pandemic that has slashed the demand outlook for crude.

Brent crude LCOc1 futures fell $1.84, or 6.8%, to $25.14 a barrel by 2215 GMT. West Texas Intermediate (WTI) crude CLc1 futures fell $1.26, or 5.6%, to $21.37 a barrel.

Oil prices have fallen for four straight weeks and have lost about 60% since the start of the year. The coronavirus, which has infected more than 325,000 and killed over 14,000 worldwide, has disrupted business, travel and daily life. Many oil companies have rushed to cut spending and some producers have already begun putting employees on furlough.

The market has had to contend with the twin shocks of the demand destruction caused by the coronavirus pandemic and the unexpected oil price war that erupted between producers Russia and Saudi Arabia earlier this month.

The current production cut deal expires March 31.

“We believe oil prices will continue to fall into the teens in the short term amid disaster demand destruction, building global stocks and no production limits after April 1,” said Joseph McMonigle, senior energy policy analyst at Hedgeye Potomac Research, in a note.

Demand is expected to fall by more than 10 million barrels per day (bpd), or about 10% of daily global crude consumption, said Giovanni Serio, head of research at Vitol, the world’s biggest oil trader.

Goldman Sachs estimated demand loss could total 8 million barrels per day (bpd), brought about by countries slowing economic activity to combat the coronavirus outbreak.

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Economy

U.S. lawmakers ask Interior to cut offshore oil royalty rates due to market slump

WASHINGTON, March 20 (Reuters) – Lawmakers representing U.S. Gulf coast states on Friday asked Interior Secretary David Bernhardt to temporarily cut the royalty rate oil and gas companies must pay on their offshore drilling operations to help the industry weather a market crash.

“Such an action in the short term will help mitigate a price war that is sinking prices and decreasing production,” the 14 lawmakers said in a letter to Bernhardt dated Friday and seen by Reuters. The congress members represent Gulf coast districts including in Texas and Louisiana.

A long list of businesses have been seeking assistance from the White House and the U.S. Congress to counter the impact of the global pandemic, which has infected more than a quarter of a million people worldwide, decimating travel and forcing massive disruptions in daily life.

The economic fallout of the outbreak combined with a price war between major oil producer nations Saudi Arabia and Russia has triggered a slump in crude oil prices that threatens the once booming U.S. drilling industry.

The American Petroleum Institute on Friday asked for additional regulatory relief from President Donald Trump, including on things like waivers for seasonal fuel requirements, a suspension of non-essential inspections and audits, and certain leasing and permitting considerations.

The lawmakers said in their letter that Bernhardt has the authority to waive or suspend royalties on existing leases under federal laws covering the Outer Continental Shelf. There is a 12.5% royalty rate for leases in water depths of less than 200 meters and a royalty rate of 18.75% for all other leases. The rate has been unchanged for more than a century.

A spokesperson for the Department of Interior did not immediately respond to a request for comment.

Firing up offshore drilling has been a crucial part of Trump’s “energy dominance” agenda to maximize domestic production of crude oil, natural gas and coal.

On Wednesday, a major sale of oil and gas leases in the U.S. Gulf of Mexico generated $93 million in high bids, the lowest total for any U.S. offshore auction since 2016, reflecting caution in the drilling industry amid a steep slide in oil prices. (Reporting by Valerie Volcovici; Editing by Richard Valdmanis)

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Politics

Trump says he will enter Saudi-Russia oil fray at appropriate time

WASHINGTON (Reuters) – U.S. President Donald Trump on Thursday said he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time, saying low gasoline prices were good for U.S. consumers even as they were hurting the industry.

Saudi Arabia and Russia have been fighting over oil market share after their three-year agreement to hold back production collapsed this month. Their pumping of crude oil flat out during a time of severely reduced global demand due to the spread of the coronavirus has pushed crude prices to near 20-year lows this week. [O/R]

“We are trying to find some kind of a medium ground,” Trump told reporters at a White House news conference, adding that he had spoken to several people about the dispute.

“It’s very devastating to Russia because when you look at it, their whole economy is based on that and we have the lowest oil prices in decades so it’s very devastating to Russia. I would say it is very bad for Saudi Arabia but they’re in a fight, they’re in a fight on price, they’re in a fight on output. At the appropriate time I’ll get involved,” he said.

Russia’s economy is more diverse than Saudi Arabia’s and less dependent on oil than the kingdom’s.

The low oil prices are devastating to U.S. crude producers who have higher costs than their counterparts in Saudi Arabia and Russia and are likely to spur consolidation in the industry.

The Trump administration is considering a diplomatic push to get Saudi Arabia to close its taps and using the threat of sanctions on Russia to force them to reduce output, the Wall Street Journal reported, quoting unidentified sources.

The United States already has placed sanctions on Russia’s Nord Stream 2 natural gas pipeline to Germany and a unit of state oil company Rosneft for its marketing of oil in Venezuela. The sanctions on the pipeline halted the project shortly before its completion.

Some U.S. lawmakers have said that Russia and Saudi Arabia are deliberately targeting the U.S. shale oil industry after the Trump administration pursued a policy of “energy dominance” to export oil and gas to Europe and Asia.

Thanks to a shale boom, the United States has become the world’s biggest oil producer, overtaking Saudi Arabia and Russia.

Nine Republican senators, including Kevin Cramer of oil-producing North Dakota who advised Trump on energy in his 2016 campaign, had a call on Wednesday with Saudi Ambassador to the United States Princess Reema bint Bandar bin Sultan, hoping to convince the kingdom to stop flooding global oil markets.

Trump talked about oil markets with Saudi’s Crown Prince Mohammed bin Salman in a call on March 9. In addition, the U.S. ambassador to Saudi Arabia, John Abizaid, spoke with the Saudi energy minister last Thursday about oil markets, the State Department said. There have been few details about those conversations.

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Business

U.S. crude hits 18-year low as lockdowns, restrictions spread

LONDON (Reuters) – Oil prices fell for a third session on Wednesday with U.S. crude futures tumbling to an 18-year low as travel and social lockdowns sparked by the coronavirus epidemic knocked the outlook for demand.

U.S. crude Clc1 was down $2.51 cents, or over 9%, at $24.44 per barrel by 1219 GMT, having earlier fallen to $24.42, its lowest since mid-2002.

The last time oil was trading that low, China had only begun its rise as a major global economic power that propelled the world’s oil consumption to record highs in subsequent years.

Brent crude LCOc1 was trading down $1.39, or nearly 5%, at $27.34 a barrel, after dropping to $27.31, its lowest since early 2016.

“The oil demand collapse from the spreading coronavirus looks increasingly sharp,” Goldman Sachs said in a note forecasting a fall in the price of Brent to as low as $20 in the second quarter, a level not seen since early 2002.

The bank expects a demand contraction of 8 million barrels per day (bpd) by late March and an annual decline in 2020 of 1.1 million bpd, which it said would be the biggest on record.

In efforts to support economies, the world’s richest nations prepared to unleash trillions of dollars of spending to lessen the fallout from the coronavirus outbreak, as well as imposing social restrictions not seen since World War Two.

Rystad Energy projects a year-on-year decrease of 2.8% or a fall of 2.8 million bpd in global oil demand this year. “To put the number into context, last week we projected a decrease of just 600,000 barrels,” Rystad said.

The consultants expect demand in April to fall by 11 million bpd compared with 2019.

The impact on demand is starting to show in official statistics with Japan’s trade bureau saying on Wednesday that crude imports into the world’s third-biggest economy in February were down 9% from a year earlier.

Virgin Australia became the latest airline to shut down its international network with the suspension of all overseas flights, while Australian Prime Minister Scott Morrison warned that the situation could last six months or more.

Elsewhere, Iraq’s oil minister pleaded for an emergency meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers to discuss immediate action to support the market.

A price war between OPEC leader Saudi Arabia and Russia after talks on coordinated output cuts collapsed this month is adding pressure to the market.

The Kremlin said on Wednesday Russia would like to see the oil price higher than current levels.

But Saudi Arabia’s energy ministry said it had directed national oil company Aramco to continue to supply crude oil at a record high 12.3 million bpd over the coming months.

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Iraqi oil minister, Thamer al-Ghadhban, asked OPEC to help “urgently achieve” extraordinary meetings of the OPEC+ group – OPEC plus partners including Russia – to “discuss all possible ways” to rebalance the oil market.

“With the Saudis and Russians in a fierce battle for market share, it is difficult to see any quick resolution on this front,” ING said referring to the Iraqi request for a meeting.

“That said, the only thing that will likely bring them back to the discussion table is even lower prices,” the bank said.

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Business

Exclusive: India plans to top up strategic tanks with cheap Saudi, UAE oil – sources

NEW DELHI (Reuters) – India plans to take advantage of low prices for oil from Saudi Arabia and the United Arab Emirates to top up its strategic petroleum reserves (SPR), two sources familiar with the matter said on Monday.

Global oil prices have fallen around 40% in March as the impact of the coronavirus pandemic has destroyed demand, while supplies are growing following Moscow’s refusal to back deeper output cuts at a meeting of the Organization of the Petroleum Exporting Countries and its OPEC+ allies.

Leading OPEC producers Saudi Arabia and Abu Dhabi have said they will increase output while cutting prices, giving big consumers the chance to fill up at discounted prices.

“It is an opportune time for us and for them (Abu Dhabi National Oil Company and Saudi Aramco) to finalize the deals and fill the SPRs…If there is any delay, we might fill the SPRs on our own,” said an official familiar with the matter, asking not to be named.

A second source, who also requested anonymity, said the oil ministry has written to the finance ministry to release about 48-to-50 billion rupees ($673.7 million) to buy oil in 8-9 very large crude carriers for filling the storage.

Indian Strategic Petroleum Reserves Ltd (ISPRL) and India’s oil and finance ministry had no immediate comment, while ADNOC and Saudi Aramco declined to comment.

India, the world’s third biggest oil importer and consumer, imports about 80% of its oil needs and has built strategic storage at three locations in southern India to store up to 36.87 million barrels of oil or about 5 million tonnes to protect against supply disruption.

ISPRL, a company charged with building of strategic storage, has signed a memorandum of understanding (MOU) with the UAE’s national oil company ADNOC for the lease of half of its 2.5 million tonnes Padur facility.

Last year it signed an MoU with Saudi Aramco for the lease of a quarter of Padur SPR.

The leases allow the national oil companies to store their oil, some of which will cater for India’s strategic needs, while they can sell the rest to Indian refiners.

Padur has four compartments that hold about 4.6 million barrels each. The ISPRL has received 1 VLCC with Arab Mix to fill one compartment and will get a second VLCC in April, a third source said.

The ISPRL has already leased half of the 1.5 million tonnes capacity in Mangalore storage to ADNOC, which has stored about 5.5 million barrels of Das oil in the cavern, while ISPRL has retained the remainder.

“This is the right time to fill the SPRs before prices start moving up,” a third source said.

India has also filled its 1.03 million tonnes Vizag facility with Basra oil from another OPEC producer Iraq.

While India is primarily taking advantage of low prices as a consumer nation, U.S. President Donald Trump aimed to help U.S. energy producers struggling to cope with the price fall by announcing he would take advantage of low prices to fill up the nation’s emergency reserve.

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World News

Iran's death toll from coronavirus reaches 724, says health official

DUBAI (Reuters) – Iran said on Sunday that the new coronavirus has killed 113 people in the past 24 hours, raising the country’s death toll to 724, a health ministry official tweeted, adding that the number of infected people had reached 13,938.

The new figures were tweeted by Alireza Vahabzadeh, an adviser to Iran’s health minister.

To contain the outbreak in Iran, one of the deadliest outside of China, officials have called on people to avoid unnecessary trips and stay at home.

A host of senior officials, politicians, doctors, commanders of the elite Revolutionary Guards and clerics have been infected with the virus. Several of them, including an adviser to Foreign Minister Mohammad Javad Zarif, have died, according to state media.

Health Ministry spokesman Kianush Jahanpur told state TV that 4,590 of those infected had recovered.

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