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A week before OPEC and its allies meet in Vienna to discuss a further reduction in oil production, the market is still wondering whether OPEC leaders and non-member countries OPEC – Saudi Arabia and Russia – will strengthen their cooperation in managing the oil market by agreeing on a fresh cut to avoid overabundance and support prices.
It is not uncommon for Russia to let everyone guess until the last moment if its production is reduced – Moscow has already done so at all previous meetings since its cooperation with Riyadh in managing the oil market started two years ago, in November 2016.
What is unusual this time around is that next week's OPEC + meeting will be much more politically charged than previous gatherings.
The President of the United States, Donald Trump, broke the party a few weeks before the start of the evening stating that he hoped that there would be no reduction, with a thank-you tweet in Saudi Arabia and a call for lower oil prices, without blaming the blame. Saudi Arabia and Crown Prince Mohammed bin Salman for the murder of Jamal Khashoggi.
Even without President Trump's recent comments on oil prices and the Khashoggi case, Saudi Arabia and Russia have read the same book, but are not exactly of the same mind as to where they want them to be. oil prices lie.
Saudi Arabia is not happy at all with the Brent Crude at $ 60. She needs much higher prices, probably closer to $ 80, to balance her budget. By contrast, Russia does not need oil prices as high as the Saudis. Due to the complexity of its oil tax system, Russian companies benefit more from lower oil prices and lower production. In early November, Moscow also took measures to limit wholesale fuel prices in order to avoid further increases in the price of gasoline, a highly politically sensitive issue for the president. Vladimir Putin, who also adopted an unpopular pension reform aimed at raising the retirement age.
Saudi Energy Minister Khalid al-Falih said at the end of a meeting of the OPEC committee in early November that the group should "do all that is necessary to balance the market ", and that OPEC analysis shows that a reduction of one million bpd may be needed to restore market equilibrium in the face of fears of oversupply start growing again. Related: natural gas prices drop below zero in Texas
At the same time, the Russian Minister of Energy, Alexander Novak, warned against any hasty decision regarding a new reversal of oil production policy. He announced that he would discuss possible cuts in oil production with Russian producers, who do not seem to want to start again after the June meeting between OPEC and non-OPEC countries. , gave them leeway to increase production to the record high of the post-Soviet Union.
Russia has officially announced that it will continue its cooperation on the oil market with Saudi Arabia, while avoiding to specify details of a possible reduction in production.
"As for the need to limit or not production, I will not talk about it at the moment. We must be very careful in this regard, because every word is important and affects the revenues of the federal budget. However, it is obvious that we must cooperate and we will cooperate, "Putin said in mid-November.
Analysts believe that, despite the dubious economic benefits of high oil prices in Moscow, Putin will find the political gain irresistible – further strengthening the influence of Russia in the Middle East – and will force Russia to accept the cuts proposed by the Saudi Arabia.
Putin, Trump and Mohammed bin Salman are all expected to attend the G-20 summit in Buenos Aires this week. Putin and Trump should meet there, as well as Putin and MBS. The Argentina summit may well be the first step of the OPEC + meeting in Vienna, where the Saudi and Russian energy ministers al-Falih and Novak will be able to seal only what their respective bosses will have agreed in Buenos Aires. Related: The biggest losers of the current decline in oil prices
Riyadh, however, is caught between the hammer and the anvil. The price of oil must be over $ 60, but Trump's support for Mohammed bin Salman could lead the Saudis to refrain from angering the US president. Saudi Arabia may refrain from announcing a decisive substantial reduction next week, preferring instead a "discrete reduction" that was not characterized as a reduction in production.
These OPEC / non-OPEC announcements are not at all unusual – vague statements stressing "market stability" are the specialty of OPEC. The June meeting, for example, ended with the wave of efforts to reach 100% compliance instead of 140% or more in previous months, which the Saudis and Russians have interpreted. as an increase in production of one million barrels a day. The results of next week's meeting may not be very different: a commitment to market stability and a percentage of compliance open to interpretation by major oil price makers in Saudi Arabia. Saudi Arabia and Russia.
By Tsvetana Paraskova for Oilprice.com
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