Saudi Arabia and Russia said on Monday that they would cooperate to stabilize oil prices, a potential sign that the production freeze talks set to take place in a few weeks could be headed for a successful outcome.
Speaking on the sidelines of the G20 summit in China, the oil ministers from Saudi Arabia and Russia said that they would setup a semi-permanent working group that would monitor the oil markets and increase cooperation and mutual understanding. At the same time, they did not go as far as saying that they would agree to freeze output in Algeria later this month, but Russia’s oil minister Alexander Novak said they were discussing the outlines of such a deal.
"We have agreed with Saudi Arabia’s energy minister on joint actions aimed at stabilizing situation on the oil market. We consider a production freeze the most efficient tool, concrete parameters are being discussed at the moment," Novak said.
But Saudi Arabia’s oil minister has sent mixed messages on the Algeria talks. In August, Khalid al-Falih said that a market intervention was not necessary, but that was followed up a few days later with a comment about how such an outcome would be “positive.” Indeed, the Saudi foreign minister said last week that his country should sign onto a deal if other powers could agree to one. But on Monday, al-Falih said that the production freeze is a “favorable option but not necessary today,” he said. Related: Venezuela’s Oil Output Set To Collapse As 1 Million Take To The Streets
Taken together, the mixed signals have confused the oil markets. Oil prices surged by more than 5 percent just ahead of the news that Russia and Saudi Arabia would cooperate, but fell back again when the oil minister appeared to downplay the significance of their collaboration.
Still, the odds of a deal look better than they did a few weeks ago. At the end of last week, Russian President Vladimir Putin voiced support for a deal, and said that he would press Saudi Arabia to agree to the effort.
Over the long-term, the high-level strategic energy partnership announced on Monday offers intriguing possibilities for the oil markets. Such an announcement should be taken with a great deal of skepticism, and the ramifications from such a vague cooperative arrangement are unknown. But cooperation could lead to a more coordinated response to oil price movements in the future, potentially offering some stability to a market that has only seen volatility for the last several years.
By Charles Kennedy of Oilprice.com
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