Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid Al-Falih met on Thursday in St. Petersburg
Oil prices are slumping and surging from one day to the next, and the two most powerful members of the OPEC+ coalition are yet to come up with a unified response.
Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid Al-Falih met on Thursday in St. Petersburg, but the two architects of the production-cuts deal showed no sign of resolving their differences.
“We need more time to work out a final position” before a meeting scheduled for the coming weeks in Vienna, Novak told reporters late Thursday after meeting with Al-Falih. “Closer to the date of the meeting we’ll understand better what actions to take.”
While the Saudis clearly want to extend the group’s production curbs beyond their expiry at the end of this month, Russia has been at best non-committal. President Vladimir Putin has emphasized the countries’ differences, noting that his nation is happy with a lower oil price than its Gulf allies.
Diverging interests and surging market volatility are making their decisions more difficult. Oil is torn between the bearish influence of U.S.-instigated trade wars and the bullish threat of supply disruptions from Iran to Venezuela. While Saudi Arabia seeks higher prices and has enthusiastically reduced production, the benefits for Russia aren’t so clear and it was slower to make the cuts.
Novak and Al-Falih will speak at the energy panel of the St. Petersburg International Economic Forum Friday morning.
U.S. oil futures slumped back into a bear market this week, while Brent crude dipped below $60 a barrel in London for the first time since January. The Russian leader showed little concern about these developments.
“We have certain differences in opinion regarding the fair price” compared with Saudi Arabia, Putin told reporters on Thursday. “$60-65 a barrel suits us just fine” because Russia’s budget is based on $40 crude, he said.
Putin’s closest oil ally, Rosneft PJSC Chief Executive Officer Igor Sechin, has long been skeptical of the benefits of OPEC cooperation and renewed his criticism this week. Russia’s share of the global oil market is already under threat due to interruptions in exports to Europe after the Druzhba pipeline became contaminated with chemicals, Sechin said. If Russia continues to cap its oil output, rival U.S. producers will “fill the void and take up the market share,” he said.
Still, Russian officials have also talked down the prospect of an agreement at previous meetings, only to eventually forge a deal with their allies. In an interview this week with the Saudi Press Agency, Al-Falih said he sees “an emerging consensus among OPEC+ countries” on cooperation in the second half of this year.
Iraq’s Oil Minister Thamir Ghadhban told Bloomberg News in St. Petersburg on Friday that he expects OPEC+ to extend its production cuts “at least” on current terms without “ serious difficulties.”
OPEC’s top official said the group will take “economic bearishness” into account when they meet in the coming weeks, and are committed to keeping oil markets balanced this year and beyond.
“There has also been a significant change in market sentiment, in both equity and financial markets” that has worsened many institutions’ outlook for oil demand growth, OPEC Secretary-General Mohammad Barkindo said in remarks delivered via video link at a conference hosted by RBC Capital Markets in New York. “This will all play into our calculations in the upcoming ministerial meetings.”
Concerns about a slowing economy may bring the group together again in time for the meeting in Vienna, said Dmitry Marinchenko, senior director at Fitch Ratings.
“If OPEC+ shifts to production ramp-ups as the global economic growth is potentially slowing, this may bring the oil prices further down,” he said. “Nobody wants it, including Russia.”