“The main reason why coronavirus is a threat to oil prices is that China is the main new consumer of oil in the world,” economist Cailin Birch said.
Birch said among the reasons behind the lack of agreement could be that Saudi Arabia’s oil industry is entirely state-run, which means it is more able to make strategic decisions about matching production levels to its desired price. Meanwhile, Russia has powerful private sector interests meaning hits to the price of oil are harder to manage.
Takin also said one interpretation of why Russia was hesitating to agree to further production cuts was that President Vladimir Putin may wish to squeeze the U.S. oil industry because, since it is led by the private sector, it is not well positioned to cope with falling oil prices.“That is a huge development for the market because the partnership between Saudi and Russia has been the only thing that’s been keeping a floor under oil prices,” Birch said.
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