A week before meeting OPEC and Allies in Vienna to discuss a new reduction in oil production, the market is still wondering whether OPEC leaders and non-OPEC countries – Saudi Arabia and Russia – will consolidate oil market management by agreeing on a fresh cut to avoid deepening and price support.
There is nothing unusual about letting the Russians argue until the last moment that they are on board with a production cut – Moscow has done so at all previous meetings, because cooperation with Riyadh for managing the oil market began two years ago in November 2016.
This time, it is unusual that the next week's OPEC + meeting will be much more politically demanding than the previous meeting.
US President Donald Trump Twitter crashed a few weeks before he began commenting that he hoped he would not have a cut, a tweet of winners in Saudi Arabia and the need for even lower oil prices while basically falling to blame Saudi Arabia and its crown Prince Mohammed bin Salman for the murder of Jamal Khashoggi.
Even without President Trump's recent comments on oil prices and the Khashoggi affair, Saudi Arabia and Russia have read from the same book but are not exactly on the same page as where oil prices are.
Saudi Arabia is not at all happy with Brent Crude for $ 60 – it needs much higher prices, probably closer to $ 80 to offset its budget. Russia, on the other hand, does not need such high oil prices as the Saudis, and because of its complex oil tax system, Russian companies benefit more from lower oil prices and higher production. Moscow also moved in early November to reduce wholesale fuel prices to prevent further gasoline prices – a very politically sensitive issue by President Vladimir Putin, who also accepted unpopular pension reform to lift the retirement age.
Saudi Arabian Energy Minister Khalid al-Falih said at the conclusion of the OPEC Panel meeting at the beginning of November that the group needed to "do everything to balance the market" and that the OPEC analysis shows that a reduction of 1 million bpd needed to restoring the balance between fears that overfunding has begun to re-build. Related: Natural gas prices are falling below zero in Texas
At the same time, Russian Energy Minister Alexandr Novak warned against speeding decisions on a further change in oil production policy and said he would discuss possible oil cuts with Russian producers who are far from interested in meeting in OPEC / outside of OPEC in June to accelerate output to post-Soviet records.
Officially, Russia says it will continue to work with Saudi Arabia on the oil market, but still avoids any specifics about a possible reduction in production.
"We need to be very cautious about the need to limit production or not, because every word is important and it affects the revenues of the federal budget, but it is clear that we should cooperate and cooperate," he said. Putin in mid-November.
Analysts believe that despite the dubious economic benefits of high oil prices for Moscow, Putin finds political gain irresistible – further strengthening Russia's influence in the Middle East – and Russia will agree to cuts proposed by Saudi Arabia.
Putin, Trump and Mohammed bin Salman are planning to visit this G20 Summit in Buenos Aires. It is expected that Putin and Trump will meet as well as Putin and MBS. The summit in Argentina may become the first stage of the OPEC + meeting next week in Vienna, when Saudi and Russian energy ministers al-Falih and Novak can only seal what their bosses have agreed in Buenos Aires. Related: The biggest losers of current oil prices
But Riyadh is caught between the rocks and the hard place. He definitely needs and wishes oil prices to be higher than $ 60, but Trump's support for Mohammed bin Salman could lead the Saudis to refrain from the US president. Saudi Arabia may refrain from declaring a significant significant decline next week, instead choosing a "quiet cut" that is not actually referred to as a production cut.
Such OPEC / non-OPEC notifications are not uncommon in all unclear statements that emphasize "market stability" are OPEC specialties. For example, the June meeting ended with the most recent announcements of striving for 100% compliance instead of 140% in the previous months and Saudi and Russians interpreted it as producing 1 million bpd. The outcome of next week's meeting may not be too different – a commitment to market stability and a certain percentage of compliance that is open to interpretation of key oil producer prices in Saudi Arabia and Russia.
By Tsvetana Paraskova for Oilprice.com
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