When Saudi Arabia and Russia sat down for official talks at the OPEC+ meeting in Vienna on December 6, they had already agreed to deeper production cuts, because days before that, the United Arab Emirates had helped broker the deal between the leaders of the OPEC and non-OPEC nations in the pact, Reuters reported on Wednesday, citing four sources with knowledge of the talks.
At the OPEC+ meeting on December 6, OPEC and its partners decided to deepen the current cuts by 500,000 bpd in the first quarter of 2020, when demand is expected to be at its weakest for next year. This brings total production reductions at 1.7 million bpd—that is if rogue members fall in line with their quotas.
Considering the pledge from OPEC’s largest producer and de facto leader, Saudi Arabia, that it would continue to significantly overcomply with its share of the cuts, the total cuts could be as high as 2.1 million bpd, OPEC said.
But there was more that went in to sealing this agreement. Days before the official OPEC+ meeting, separate meetings between top Russian and Saudi officials, including Saudi Crown Prince Mohammed bin Salman and Energy Minister Prince Abdulaziz bin Salman, were held on the sidelines of the Formula One Grand Prix race in Abu Dhabi in the UAE, according to Reuters sources. Related: Have Oil Prices Reached An Inflection Point?
It was after this meeting that Kirill Dmitriev, chief executive at the Russian Direct Investment Fund (RDIF), the country’s sovereign wealth fund, and an influential advisor to the Kremlin, told the Saudi princes that Russia had agreed to deeper cuts, one of the sources told Reuters.
Saudi Arabia had the UAE helped it sway Russia to continue supporting the deal and more importantly, to agree to deeper cuts, at a time when the Saudis need higher oil prices for Aramco’s IPO and for balancing its budget.
Russia, on the other hand, doesn’t need as high oil prices—$80 a barrel—like the Saudis do, and Russian oil companies have long balked at continued production cuts, arguing that the cuts give more market share to U.S. shale and hinder Russian firms’ production expansion plans.
Agreeing to deeper cuts, however, Russia gains more influence in the Middle East, while convincing Russia to agree to additional cuts helped Saudi Arabia to avoid an oil sell-off in case of a disappointing outcome of the OPEC+ meeting.
By Tsvetana Paraskova for Oilprice.com
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