Russian commitments to production cuts under the OPEC+ framework has never exceeded 300,000 bpd.

Such a deal could try to jumpstart the market back to the $45-$55 range that Sorokin outlined, which would be a climbdown for the Saudis and a loss of face for Crown Prince Bin Salman, but it would lessen the burn rate on Riyadh's reserves. Compared with Russia, Saudi Arabia finds the prospect of Brent prices recovering only … Saudi Arabia also has a financial cushion to maintain its current standoff, with roughly $502 billion of reserves.

As a result, Russia has largely maintained its volume in recent years, and even benefited from the 2017-2019 price surge, while failing to bear anywhere near a proportional share of the burden — a trend that has increasingly frustrated Saudi Arabia. The kingdom's 2020 budget was based on a 6.4% deficit with Brent crude oil prices at $65 per barrel. Within that scenario, Saudi Arabia's behavior becomes all the more crucial. Following Russia's recent falling out with Saudi Arabia on production cuts, the meeting of the OPEC+ Joint Technical Committee scheduled for March 18 — which Russian officials had previously said they would attend — was canceled. And this, combined with the fact that hydrocarbon exports make up less than 35 percent of overall government revenue, puts Russia in a stronger position than Saudi Arabia to take the pain of falling crude prices.

Saudi Arabia's oil-dependent economy, on the other hand, will be among those hardest hit from the very price cuts to it's now willingly helping to exacerbate. But that doesn't mean a smaller deal where the Russians commit to a modest cut and the Saudis again bear more of the burden isn't a possibility, or even a Russian capitulation and acceptance of the original Saudi-led OPEC proposal. But as Saudi Arabia pounds prices into the ground, Brent futures could soon fall in the $20-$30 range. In mid-2019, Putin publicly opposed Saudi Arabia's push for higher prices, saying he viewed the $60-$65 range as "comfortable."

Saudi Arabia, by contrast, has consistently overperformed on its obligations since the initial December 2016 agreement on production restraint. Russia’s decision to pull out was precipitated by the Saudi-driven ultimatum to back a 1.5 million barrels per day (bpd) of production cut through the end of 2020. But his decision to retaliate against Russia by slashing its oil prices and ramping up output risks backfiring, and badly. The alternate scenario is that the financial pain of dropping oil prices eventually brings both Saudi Arabia and Russia back to the table. This leaves a situation in which there are several plausible outcomes, with the most likely being that OPEC+ never reaches a deal to cut production and the physical market eventually corrects itself (as Russia anticipates). Russia and Saudi Arabia have called off their brutal price war and are now pushing dozens of major crude producers toward a deal that would slash production and help stabilize a … That is more than the kingdom can actually produce each day based on Saudi Aramco's current infrastructure, despite claiming to have a capacity of 12.5 million bpd. And that in the absence of an OPEC+ agreement, competitors will begin to change their investment decisions soon regardless, though most of the volume loss would likely be in 2021 after prices bottom out and begin to recover. In an interview with Reuters, Sorokin said Russia intended to let market forces deal with the surplus, expecting initial signs of weakness in competing supply in four-to-six months. In response to OPEC+'s failure to reach a production cut agreement on March 6, Brent crude prices had closed at $46. This has fueled Saudi Crown Prince Mohammed bin Salman's recent push for higher prices, as well as his willingness to take a losing gamble that Russia would cave to an ultimatum for a large cut once they were confronted with the prospect of a price collapse. By Alex Ward @AlexWardVox Mar 9, 2020, 3:40pm EDT Share this story. Despite mounting fears of coronavirus-related drops in global oil demand, Saudi Arabia recently signaled its intent to flood the market with even more discounted exports following Russia's rejection of proposed OPEC+ production cuts. Saudi Arabia and Russia feud over oil prices following the biggest one-day price crash since the Gulf War in 1991. But the inventory overhang will still prevent prices rising back to $60 while there is an inventory overhang, while Russian reserves would stabilize at $45-$50.

Compared with Saudi Arabia, Russia has also often taken longer to implement cuts.

But with Riyadh's fiscal breakeven at over $80 per barrel, lower oil prices will begin to drain those reserves much more quickly than Russia's reserves. Price War III: 22 months. 15 Mar 2020 13:15 GMT Business & Economy, Saudi Arabia, Russia, Fossil Fuels All of this suggests that the Russian leadership has accepted a pessimistic view of the current market and believes that prices need to spend some time below their equilibrium to temper higher-cost supply for both short-cycle shale and longer-cycle offshore products. Oil fell from about $20 a barrel to less than $10, and the peace didn’t arrive until April 1999. This resulted in U.S. production growth of more than 2 million bpd in 2019, offsetting demand for Russian crude (as well as the entirety of global demand growth). Surprisingly, he put forward the view that Russia's equilibrium is the $45-$55 per barrel range, which he said should be comfortable for producers and allow demand to recover.

In going this route, Russia is accepting a period of significant fiscal pain to maximize revenue gains in the long-term. A Russian capitulation and acceptance of the original Saudi-led OPEC proposal is unlikely, given that Russia clearly wants to avoid a feedback loop where production cuts yield a premature price recovery that ends up cutting into its market share.

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