Stock markets the world over were roiled this week by the twin blows of coronavirus and turmoil in the oil world. As the economic impact of the pandemic bit, a dispute between Saudi Arabia and Russia drove down the price of oil.
The conflict stems from Russian and Saudi concerns over the U.S. shale industry, which in recent years has upended global energy markets and made America self-sufficient in oil—though much of the growth has been achieved on a base of debt.
Russia ditched its cooperation with OPEC nations after Saudi Arabia called for oil production cuts—the latest round of caps—to address oversupply in the market and raise prices amid a coronavirus-driven slowdown in Asia.
Moscow may have hoped to force American shale producers out of the market by throttling prices, or may be shifting to try and take a bigger slice of the Asian market for itself.
Part of the decision may also be a response to fresh U.S. sanctions on Venezuela, where Russia's Rosneft oil corporation is helping finance state oil producer PDVSA and prop up President Nicolas Maduro.
The Saudis retaliated by flooding the market with oil, collapsing prices. Moscow and Riyadh are now locked in a standoff as coronavirus disruption dampens global demand and pushes prices even lower.
Randolph Bell, the director of the Atlantic Council's Global Energy Center, told Newsweek that the June OPEC meeting is likely the next chance for Russia and Saudi Arabia to find an offramp.
"Russia's going to have to give something and Saudi's probably going to have to give something," Bell explained. "It's unclear if going back to the previous production cuts is enough for Saudi, it's unclear what Russia would concede."
"Most likely the first opportunity for any resolution is June," Bell said. "Things could happen sooner, depending on how bad the oil market gets."
On Thursday, the Saudi state-owned Saudi Aramco oil corporation announced it would up production to 13 million barrels per day—a record high—to turn the screws further on Russia.
Though discussions are ongoing between the two nations, Helima Croft—the Managing Director and Global Head of Commodities Strategy at RBC Capital Markets—said Wednesday: "I am not as optimistic that we can get a quick off-ramp."
The economic impact of coronavirus is still unclear. Markets are already suffering but most of the Western nations impacted are only at the start of the pandemic's curve.
China is showing encouraging signs of containing the virus spread, but oil demand will depend on how quickly other nations recover. If demand remains low in June, Russia and Saudi Arabia might be more inclined to reach a deal.
The Saudis will be hurting too. Jim Krane, a fellow at Rice University's Baker Institute of Public Policy in Houston, told the South China Morning Post this week that a price war among oil producers is "like a bunch of friends holding their breath to see who can hold it the longest."
In the meantime, American producers are nervously watching the plummeting oil price. But the situation could also be an opportunity, at least for the larger U.S. producers with balance sheets strong enough to manage a price war, Bell said, such as Exxon and Chevron. Indebted smaller producers might go to the wall, allowing the larger companies to consolidate the market.
Lawmakers and President Donald Trump's administration have been discussing possible federal aid for struggling shale producers. Such companies, Bell explained, "are an important constituency for President Trump and for a number of Republicans in Congress."
"My take is that ultimately the U.S. is going to come out stronger than Russia," Bell added, given the resilience of American shale and the internal division within OPEC and OPEC-plus.
"Russia miscalculated in thinking that it could punish the U.S. in any real way," he added. "I think it'll take a little while for Russia to figure that out but I think it ultimately will, and that this ultimately is a good thing from a U.S. geopolitical perspective."