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Oil Rally Continues As OPEC+ Leaves Production Levels Unchanged

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Saudi Arabia And Russia Are Headed For Another Clash On OPEC+ Oil Cuts

The leaders of the OPEC+ alliance, Saudi Arabia and Russia, are reportedly once again at odds over oil supply management ahead of another crucial meeting of the group next week.

OPEC’s top producer and de facto leader Saudi Arabia would likely prefer the March 3-4 meetings to decide that the OPEC+ coalition holds production flat in April, Bloomberg reports.

However, the key Saudi partner in the deal, Russia, will likely be pushing for further easing of the production cuts, especially Russian Deputy Prime Minister Alexander Novak said earlier this month that the global oil market was balanced and the current price of oil fully reflected this market situation.

Therefore, the two leaders of the pact are once again going into an OPEC+ meeting with diverging views on how to manage supply to the market.

Oil producers need to remain extremely cautious as uncertainty on the market is still very high, Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said last week.

Saudi Arabia, through its extra cut of 1 million barrels per day (bpd) in February and March has helped the efforts of the OPEC+ alliance to tighten the oil market in the first quarter, while demand is still relatively weaker, especially outside Asia.

Saudi Arabia could use the timing and pace of reversing that 1-million-bpd cut as “leverage for getting a deal” next week, Bill Farren-Price, director at research company Enverus and veteran observer of OPEC, told Bloomberg.

The extra Saudi cut has been one of the factors that have supported the oil price rally in recent weeks. With oil above $60 a barrel, however, analysts reckon more OPEC+ members, especially Russia, would likely push for a more aggressive easing of the cuts from April.

Analysts and the market have not forgotten last March’s debacle when Russia and Saudi Arabia disagreed on how to tackle the crashing demand at the start of the pandemic and broke up the OPEC+ pact for a month. 

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on February 23 2021 said:
    The claim that Saudi Arabia and Russia are headed for another clash on OPEC+ oil cuts is totally untrue.

    What is, however, true is that with rising crude oil prices, OPEC+ will have to adapt its cuts to the needs of the market to ensure that a demand-supply balance exists in the market.

    Still, the oil strategies of the leaders of OPEC+, namely Russia and Saudi Arabia will diverge with rising oil prices because Russia’s economy can easily live with an oil price of $40 a barrel or less whilst Saudi Arabia and the overwhelming majority of OPEC members need an oil price higher than $80 to balance their budgets. And whilst Russia believes that an oil price ranging from $60-$65 can delay a comeback of US shale oil production, Saudi’s and other OPEC members’ motivation is prices as close as possible to $80 or even higher.

    However, the bottom line is that Russia and Saudi Arabia will continue to cooperate even with rising oil prices because such cooperation has entrenched OPEC+’s position as the pillar of the global oil market and provided both of them with huge unrivalled influence over the global oil market and prices.

    Saudi Arabia will never try to rock the boat as it did in March 2020 when it waged a ferocious price war on Russia and ended up losing the war having suffered the biggest damage to its economy and finances.

    Were it to start another price war by flooding the global oil market, it will earn the condemnation of the world’s oil producers, the ire of the US shale oil industry and therefore the United States and will again end up losing the war and inflicting more lethal damage on its economy. That is why, it won’t take that route again.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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