Saudi-Russia oil alliance likely to undercut OPEC

Saudi Arabia hopes to bring Russia into the fold of an expanded club of global oil giants to sustain a stable market, leaving OPEC's role in question, analysts say.

The new union, spearheaded by Riyadh and Moscow, is expected to be larger than the 14-member OPEC oil cartel, which has dominated the global energy market for the past six decades.

But experts say an expanded group that includes Russia means OPEC's sway in global oil is fading, if not all but “dead”.

In January, OPEC kingpin Saudi Arabia floated the idea of extending a cooperation agreement struck in late 2016 by 24 OPEC and non-OPEC producers to trim output and shore up prices.

Top Saudi officials, including Crown Prince Mohammed bin Salman, and Energy Minister Khaled al-Faleh, have called for a long-term cooperation framework between oil producers.

The idea received strong support from several OPEC members, mainly the United Arab Emirates and Kuwait.

A Kremlin spokesman said last month that Russia and Saudi Arabia have been discussing a “wide range of options” on cooperation in the global oil market.

OPEC and non-OPEC countries will meet in Saudi Arabia's Jeddah on Friday to assess compliance with production cuts and to discuss potential long-term cooperation.

Producers have already been encouraged by the success of their broadened cooperation, which helped restore balance to the crude market, rebounding prices from as low as $26 a barrel to above $70 a barrel.

'A new chapter'

OPEC secretary general Mohammed Barkindo on Monday praised the cooperation agreement as a “great success” that has helped to overcome “the worst cycle in the history of oil”.

Kuwaiti oil expert Kamel al-Harami said “it would have been difficult to achieve that success by OPEC alone”.

He told AFP that at its root, the new agreement “basically looks like a Saudi-Russian alliance”.

The deal, which cut output by 1.8 million barrels per day, has removed more than 300 million barrels of surplus oil and lowered extra crude stockpiles to just 50 million barrels.

Oil Minister of non-OPEC Oman, Mohammed al-Rumhi, told an oil conference in Kuwait on Monday that the secret of the deal's success was compliance with production cuts.

But he warned that “the game is not over yet,” calling on producers to continue cooperating to maintain market conditions.

“The two largest suppliers of conventional oil in the world — Saudi and Russia — can work together to maintain stable prices or fight each other by increasing production to kill the market for shale oil producers, but at the same time kill themselves,” said Jean-Francois Seznec, an oil expert at US Johns Hopkins University.

“The only logical and smart approach is to keep prices stable,” he told AFP.

Oil prices collapsed in mid-2014 because oil producers, mainly Saudi Arabia, refused to cut production to maintain market shares against tough competition from US shale oil — eventually resulting in a massive oil surplus.

The Saudis later reversed course, cutting deeper than their required quota to ensure the deal's success.

Barkindo described the Saudi-Russia alliance as a “new chapter” in the oil industry's history.

In the coming months, producers will look “to institutionalize this long-term framework” with inclusive and broad-based participation, he said.

Posted on: 2018-04-19T11:13:00+05:00