Oil futures were in freefall on Friday after reports emerged Russia has rejected OPEC's proposal to cut collective production by an additional 1.5 million barrels per day through the end of 2020, as the cartel sought an aggressive response to the slump in global oil demand. Near noon, both crude benchmarks -- WTI and Brent -- shifted sharply lower as delegates began to leave the conference without a new deal on production cuts. Russian Energy Minister Alexander Novak told reporters on Friday the lack of consensus meant that members could now pump what they liked starting April 1.

"We have made this decision because no consensus has been found of how all the 24 countries should simultaneously react to the current situation. So, as from April 1, we are starting to work without minding the quotas or reductions which were in place earlier but this does not mean that each country would not monitor and analyze market developments," he added.

Under the proposed new deal, non-OPEC countries were expected to shoulder 500,000 bpd in overall cuts, with OPEC members contributing 1 million bpd in added output reduction through the end of the year. Analysts estimate the proposal would have accounted for a total of 3.6 million bpd or 3.6% in available supply removed from the global oil market. In addition to the OPEC+ cuts, Saudi Arabia has reduced their output by an additional 400,000 bpd.

Since early 2016, OPEC+ alliance have been repeatedly cutting production to support oil prices in the face of surging supplies from countries outside the alliance, namely the United States. However, more than three years into their production-limiting agreement the group is increasingly ceding its market share, while prices never reached a sustainably high level of $80 bbl -- a breakeven price for the Saudi budget.

In their annual World Oil Market Outlook released late last year, OPEC acknowledged its global market share would drop to 31% in 2024 from 37% in 2018, as production declines by a staggering 2.2 million bpd within the next five years. Not surpassingly, many members were relentlessly producing above their pledged quotas, clouding the viability of such agreement in first place.

Upon leaving the meeting, Iran's energy minister Bijan Zanganeh said OPEC had "no plan B" if Russia rejected the new proposal, which some rightfully called an ultimatum as "the proposal" was made right before Novak landed in Vienna.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)

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