Russia and Saudi Arabia have agreed to extend their oil partnership indefinitely, with the agreement stipulating that they could move to regulate oil production at any moment, TASS reports, quoting Energy Minister Alexander Novak.
"I think that the framework is the same (the current agreement). It will simply be institutionalized, and will not specify particular volumes. Most likely it will stipulate the possibility of decision-making if needed,” Novak said.
The news is a confirmation of what everyone was expecting from the largest participants in the OPEC+ deal. However, the significance of this agreement is only hypothetical: the terms cited by Novak are very general and—hardly surprisingly—there are no stipulations concerning specific production volumes.
Russia and OPEC are meeting next Friday to discuss the future of the production cut deal. Moscow and Riyadh have made it clear they are in favor of a return to higher production to keep a lid on prices but other OPEC members, notably Iraq and Iran, are against it. Related: The Fed Is Driving Down Oil Prices
On Saturday, Novak said he and his Saudi counterpart Khalid al-Falih had agreed to propose to the group to up production by 1.5 million bpd beginning in July. The final decision needs to be unanimous for OPEC, however, and many analysts expect the meeting to be a disaster.
"We are only proposing this for the third quarter. In September we will review the situation in the market and decide the future course," the minister said.
The need to increase production emerged as Venezuela’s production is in free fall and Iranian production is threatened by the re-imposition of U.S. sanctions. At the same time, global demand is growing according to most forecasts, which pushed Brent crude to over US$80 a barrel in April. This, however, proved too expensive for the world’s biggest consumers China and India—as well as from President Trump—and calls for reining in the price followed.
By Irina Slav for Oilprice.com
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However, they should not give themselves extraordinary powers to breach the the OPEC deal at well by intervening to raise or lower production as they see fit thus sidelining OPEC.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Cooperation between Russia and the Saudis seems to be based on controlling market price. They may agree on production level, but look how differently the two countries are using their oil wealth. The Saudis are looking to modernize in a big way. Putin is talking up benefits for citizens; but they spend a lot on weapons, relative to the size of their economy.