Russia’s Reluctance to Cut Oil Output Sends Price Below $50

For the first time in more than a year, global oil prices dropped under $50 a barrel Thursday as Russia sent signals it would not commit to new OPEC-led supply cuts, while U.S. crude reserves continued to grow, Bloomberg reports.

Oil futures plunged as much as 1.8% in New York, after sliding 2.6% in the previous two sessions. According to government data, U.S. crude inventories rose for the 10th week.

Just days before talks on oil policy with Saudi Arabia, Russian President Vladimir Putin said current prices are “absolutely fine,” while Saudi energy minister said the kingdom is confident OPEC and its partners can reach a deal to stabilize the market.

With oil prices volatile, market watchers are looking toward the G20 meeting in Argentina on November 30 and the OPEC and OPEC+ meetings on December 6 and 7 for direction.

At present, some OPEC and OPEC+ countries are overproducing these allocations to make up for supply glitches from Venezuela and Iran. Saudi Arabia, in particular, has been producing between 11.1 and 11.3 million barrels per day of oil in November, which is more than 1 million barrels per day above its allocation of 10.06 million barrels per day, according to S&P Global Platts.

Russian energy minister Alexander Novak previously said that Russia was not interested in cutting its production at this time, though this was before Brent fell to $60 per barrel. Even though Putin said that Russia is as happy with oil prices at $60 per barrel, Novak is already discussing cutting production with the major Russian oil companies.

It seems likely that they will agree to return to producing at Russia’s previous allocation levels since Russian oil production typically declines during the winter months anyway, so agreeing to cut back production is convenient for them.

According to analysts from Citigroup Inc. to Renaissance Capital speaking to Bloomberg, the most recent financial data from companies including Rosneft and Lukoil show an industry that has little to fear from oil’s plunge back into a bear market.

Thanks to low production costs, plus the natural hedge of falling taxes and a weakening ruble if prices drop further, they could withstand years of cheap crude, analysts say.