The idea of ​​a Saudi-Russian led mega-oil cartel looks fanciful

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Since the members of the OPEC oil cartel, led by Saudi Arabia, and 10 non-OPEC producers, led by Russia, have united in a historic agreement in 2016 of 1.8 million barrels per day (bpd) of production outside the global supply basin, there has been a lot of talk about this leading to something more formal or institutional between both groups.

Such speculation is understandable, since the relative strengthening of the price of oil over the last 12 months was largely due to the agreement negotiated between Saudi Arabia and Saudi Arabia. Russia, two of the largest producers of crude in the world.

The need of the hour was to support the price against the additional barrels put on the market thanks to the third world producer – the United States – whose the manna of shale producers, animated by l & # 39; private enterprise spirit, could not derail by increasing production and competition, not that the OPEC to a test

OPEC and the non-OPEC countries largely remained firm at the market's surprise, for many exciting commentators, a possible oil cartel negotiated between Russia and the United States. Saudi Arabia has become a snapshot of the future of the market. They gave him a lot of names – "OPEC-Plus", "Super-OPEC" and more. Russian Oil Minister Alexander Novak and his Saudi counterpart, Khalid Al-Falih, both said it was necessary to "take advantage" of the fruitful cooperation. model and "institutionalize its success through a broader and more permanent strategic framework."

At the end of the last meeting of OPEC Ministers in June, where the cartel offered a confused message of nominal output Of 1 million bpd For many observers, the main topic of discussion was the UAE oil minister and the reiteration by OPEC President Suhail Al Mazrouei of the idea of 39, institutionalize OPEC and the non-OPEC badociation.

had been circulated for an agreement by the end of 2018. An enlarged OPEC could indeed represent a seismic market change. Yet for all the good phrases, the idea seems fanciful enough for a multitude of reasons.

The story should be a good starting point to put a damper on the expectations of a mega cartel. In almost six decades of existence, OPEC has used production cuts as a strategic tool to influence the direction of the global market, while post-Soviet Russia sees it as a management tactic of supply to deal with the imbalances that she considers extreme.

Any attempt to institutionalize such divergent viewpoints would result in the expanded cartel becoming little more than a talking shop. While Al-Falih and Novak seem to have formed a very close working relationship over historical mistrust, it is still hiding behind the two producers who weigh more than 10 million bpd.

Do you want clues, just read the former Saudi Minister Ali Al-L Naimi's autobiography published after his retirement as oil minister in May 2016; just six months before the creation of OPEC and the non-OPEC agreement. In the book, the former OPEC broker says that in situations close to the oil demand crisis in 2008-09 and the overabundance of supply in 2014, everyone he expected the Saudis to act. who promised one thing and did another.

So, why did it work later in the year? Simply because the impact of American shale barrels was so huge that Russia eventually had to cooperate with OPEC, which brought nine other non-OPEC producers for the ride .

This brings us to another complication: the temporary nature of the badociation – which, if it were formalized, would present divergent political interests even if the monetization of oil barrels at the highest price would be the overriding goal.

Dr. Carole Nakhle, founder and CEO of Crystol Energy, says that the initial fiscal year and the non-OPEC producers in themselves constituted a mammoth undertaking. "What brought these parts together was the challenge of the American shales, so big that OPEC or Russia could not handle it alone, which is why I consider that it is an badociation of convenience. "Of course, one can argue for an badociation or a friendly collaboration to continue, especially between Russia and Saudi Arabia, but formalize this would pose many obstacles. "

Nakhle also adds that the geopolitical, emerging scenarios and different interpretations of the growth of demand will be difficult to align with the political objectives of 24 OPEC very diverse and not In addition, the structure of the industry in Russia is that it is hard to imagine the country's businesses blindly follow t the OPEC in the long run. "Despite the overexcitement of the market, I feel the concept of f" Super OPEC "remains problematic and there is not enough thinking about the features that would imply an extension of a producer's equipment. Existing oil.Even what has been accomplished up to now has required skillful maneuvers, especially from the Russians. "

Far from falling into the over-excitement of a mega-cartel, it should be noted that the true leverage of the OPEC market and other OPEC alliance is the possibility of termination of the agreement at any time, says Serkan Sahin, director Europe and Africa's oil and gas research at Thomson Reuters.

"There is no binding legal condition, having a Super OPEC would be impractical and lead to more conflicts and tensions between OPEC countries and non-member countries. OPEC For me, this sounds more like "a wedding of opportunity", but it is unlikely that it will turn into "marriage until death". "

In addition, the opportunity could be removed from the table The tweets of US President Donald Trump, taunted by OPEC, have, on the whole, pushed the cartel to react, to the chagrin of the United States. Iran.

Tehran, subject to unilateral sanctions by the United States, wanted OPEC and non-OPEC producers to maintain the status quo by maintaining cuts rather than cuts. increases in production, which has not happened technically and continues to pose challenges.

It also signals another mute point – when the O PEP itself is not united. home, and never has been, how can an enlarged body of 24 growers operate in complete alignment?

According to Thomson Reuters petroleum research, total crude oil production from OPEC and non-OPEC countries accounted for 66% of all crude oil production, excluding non-crude liquids. OPEC and the United States in June 2018.

"This is a good lever for them under current market conditions.However, I doubt that Saudi Arabia would like to have another binding commitment with Russia in its production strategy Having to face Iran in the framework of OPEC is already enough for Riyadh, "concludes Sahin.

Far from reshaping the world order, 39 OPEC agreement and non-OPEC countries should remain a temporary convenience badociation. "To create another super body, there is likely to be a new chat room rather than a new one. A mega cartel on a market already flooded with warm air.

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Depu OPEC members, Saudi Arabia and 10 Non-OPEC producers, led by Russia, met in a historic agreement of 2016 to extract 1.8 million barrels per day (bpd) ) from the production of the global supply basin, there has been a lot of gossip about this leading to something more formal.

Such speculation is understandable, given that the relative strengthening of the price of oil over the past 12 months has been largely reduced to the agreement negotiated by Saudi Arabia and Russia, incidentally two of the biggest in the world. The need of the hour was to support the price against the additional barrels put on the market with the permission of the third world producer – the United States – whose shale producers manna, motivated by the spirit of the company could not derail by increasing production and competition, not that OPEC did not try it