Saudi Arabia, Russia say oil market cooperation to continue with bilateral deal
Saudi Arabia and Russia said they will develop a “comprehensive bilateral agreement” on energy cooperation, suggesting that even if the OPEC/non-OPEC production-cut agreement falls apart, they will continue their market-management efforts.
* Countries pledge ‘reliable and sufficient supply’ * Alliance bonds two of world’s top producers * Show of strength ahead of tricky OPEC meeting
In a statement issued after they met in Moscow, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak said they would strive “for a balanced market that is supported by a reliable and sufficient supply.”
Their efforts were endorsed by Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin, who also met earlier Thursday ahead of the 2018 World Cup’s opening match between the two nations.
“Without a doubt, we would like to continue this cooperation and move forward,” Salman said during the meeting with Putin, according to a Kremlin transcript. “Today we have a very historic OPEC+ agreement in place, OPEC and non-OPEC countries are working together.”
Putin also praised the burgeoning political and economic ties between the two countries and endorsed the crown prince’s call for greater cooperation on energy issues.
“We will continue working together in the most important area for us,” Putin said.
Warming ties between Saudi Arabia and Russia — two of the world’s top three oil producers — have been a game changer in the market, leading to the 1.8 million b/d production cut agreement sealed in late 2016 to eliminate a global inventory overhang.
OPEC is set to meet June 22 in Vienna to decide the future of the deal, with non-OPEC partners, including Russia, joining the meeting a day later.
Saudi Arabia and Russia have been keen to pump more barrels to moderate oil prices and prevent a supply gap resulting from continued production declines in Venezuela and the potential impact of US sanctions on Iran, which snap back November 5.
Novak said earlier Thursday that the OPEC/non-OPEC coalition could consider raising production as much as 1.5 million b/d.
But price hawks Iran, Iraq and Venezuela have vehemently said they are opposed to any attempts to modify the output deal, setting up a week of potentially difficult negotiations.
“Fundamentals at these prices show that we don’t need extra barrels in the market,” Iran’s OPEC Governor, Hossein Kazempour Ardebili, told S&P Global Platts Thursday in an interview.
OPEC, as a whole, produced 31.90 million b/d in May, according to the latest Platts OPEC survey, some 840,000 b/d below its collective ceiling of about 32.74 million b/d, when every country’s quota under the production agreement is added up.
OPEC and Russian officials have long discussed extending their cooperation beyond the terms of the production-cut deal, but have not specified what such an agreement may entail.
Prior to signaling its desire to increase output in the short term, Saudi Arabia had declared that the cuts might need to continue into 2019 to bolster prices and encourage upstream investment.
Novak and Falih, in their joint statement, said they would seek to “support investment in the oil and gas sector to meet the growing demand for oil and compensate for natural decline in production.”
And they said they would work with all members of the OPEC/non-OPEC agreement, as well as other major producers, to create a “long-term structure for interaction.”
Novak and Falih credited the production-cut deal for leading “to the stabilization of the oil market.”
“Given the importance of continuing this process to ensure the well-being and growth of the world economy, the Kingdom of Saudi Arabia and the Russian Federation agreed to take the next step toward expanding cooperation in the energy sector, especially in the oil and gas sector,” the statement said.