Russia and Saudi Arabia seek 1.5m bpd rise in Opec output
An oil production shortfall in Iran and Venezuela changes scenario for the two countries and group
Russia and Saudi Arabia will ask Opec to hike production by 1.5 million barrels a day in the third quarter of 2018, Russian Energy Minister Alexander Novak said on Saturday.
Opec and Russia decided together in 2016 to cut their supply in order to push prices up following a crash induced by a global crude production glut.
An oil production shortfall in Iran and Venezuela has changed the scenario for the two countries and members of the group.
Novak said Moscow and Riyadh “propose increasing production in the third quarter by 1.5 [million bpd],” according to RIA Novosti news agency.
“We are only proposing this for the third quarter. In September we will review the situation in the market and decide the future course.”
Russian President Vladimir Putin and Novak met Saudi Saudi Crown Prince Mohammad Bin Salman before the opening World Cup match in Moscow.
Since 2017, an Opec agreement on production cuts has allowed oil prices to rise
However, there are fears that renewed American sanctions against producer Iran and a fall in output in Venezuela, a country in crisis, could disrupt supply.
Since he became Saudi Arabian energy minister two years ago, Khalid Al Falih has had a good run: he persuaded a fractious Organisation of Petroleum Exporting Countries (Opec) to cut oil production, convinced Russia to join the group in curbing output, and then saw Brent crude rise nearly 75 per cent to $80 (Dh293.84) a barrel.
But his toughest test comes this week when Opec holds what’s likely to be its most difficult meeting in years. As economic growth, renewed sanctions on Iran and the collapse of Venezuela’s petroleum industry stretch the global oil market, he needs to ensure a smooth exit strategy from the cuts without causing a crash in prices.
To make things more complicated for the mechanical engineer turned oil diplomat, Opec is being buffeted by competing geopolitical agendas. While Riyadh and Moscow have agreed to open the taps, Caracas and Tehran want higher prices to compensate for the impact of US sanctions.
Consensus imploding
“The consensus is imploding,” said Roger Diwan, a veteran Opec watcher at consultant IHS Markit Ltd. “I don’t see how you can reconcile the positions of Russia, Saudi Arabia, Venezuela and Iran. The contradictions are too many.”
And behind the scenes, a
A Trump administration worried about the impact of rising gas prices on midterm voters is lobbying hard for a surge in production.
Trump administration worried about the impact of rising gas prices on midterm voters is lobbying hard for a surge in production.
“This is the most political Opec meeting in a long time,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.
When Al Falih was appointed energy minister in May 2016, replacing the veteran Ali Al Naimi after almost 25 years in the job, Saudi Arabia had little grip on the market: US shale production had stolen market share and Opec’s policy response was essentially every man for himself. With prices barely above $45 a barrel, Saudi Arabia was bleeding foreign reserves at the rate of $10 billion (Dh36.73 billion) a month.
Al Falih, a methodical technocrat who rarely sleeps more than four hours each night, rolled up his sleeves. First, he made clear Riyadh was prepared to reverse the pump-atwill policy Al Naimi had forced on the rest of Opec in 2014. Then, with the help of his boss, Prince Mohammad Bin Salman, he reached out to Russia, convincing Moscow to join Opec production curbs for the first time in more than a decade.
He built a close working relationship with his Russian counterpart Alexander Novak, cementing the alliance between the world’s two largest exporters. They talk regularly, both by phone and in person, and like to put forward a united front in joint media appearances. On Thursday, they were at Moscow’s Luzhniki stadium to watch Russia beat Saudi Arabia in the opening match of the World Cup together. Two days later, Novak visited Saudi Arabia for a working meeting with Al Falih.
Mohammad Al Shatti, the national representative at Opec from Kuwait, said that Al Falih delivered two new things to the group.
“The first is his good cooperation with non-Opec and that’s one of the reasons behind the success of the current production cut agreement,” he said. “The second feature is his ability to think outside the box and look for new ideas all the time.”
Even then, the initial results were paltry, in part because Saudi Arabia decided to compensate for lower production by drawing down its own inventories rather than limiting exports.