Page 6 - FSUOGM Week 37 2019

FSUOGM COMMENTARY FSUOGM
Russia takes cautious approach to Saudi events
Russia wants to avoid the crisis escalating, and keep both the OPEC+ deal and its relationship with Suaid Arabia in tact
RUSSIA
WHAT:
Russia has dismissed plans to adjust production in light of the Saudi outage.
WHY:
Moscow could jeopardise the OPEC+ deal by capitalising on Saudi difficulties.
WHAT NEXT:
Russia is keen to de- escalate the situation and maintain good relations with Saudi Arabia.
MOSCOW is yet to formulate its response to the September 14 drone strike on Saudi oil facilities that knocked out close to 6% of the world’s oil supply, causing global prices to spike.
Russia stands to gain from the Saudi outage economically, at least in the short term, because of higher oil prices. The attack slashed the king- dom’s supply by more than 5.7mn barrels per day (bpd), causing oil prices to soar by 19.5% to $71.5 per barrel when Asian markets opened on September 16. Around half of this gain was lost when European trading began, however.
Saudi authorities were slow to provide guid- ance on how quickly production would recover. On September 17, however, national oil com- pany Saudi Aramco told a press conference that normal output would be restored by the end of the month. Earlier that day, sources told Reuters that production had recovered faster than antic- ipated, with 70% of the lost supply already hav- ing been restored. The report had an immediate impact on the market, with Brent crude futures slumping to below $65 per barrel when US trad- ing began that day.
Even so, until this recovery becomes more
evident, uncertainty about supply will continue to assert upward pressure on prices, as will the risk of conflict. This will serve to boost Russia’s oil export revenues.
Keeping the truce
Russia has dismissed suggestions it will take advantage of Saudi Arabia’s outage to expand its market share, however. Asked on September 16 whether Russia was ready to ramp up its out- put to make up for the Saudi shortfall, Russian Energy Minister Alexander Novak told reporters that Moscow would wait for more information from Riyadh on the duration of the outages, according to Reuters. Echoing this position, Kremlin spokesperson Dmitry Peskov said sep- arately that day that Russia would wait and see how the situation unfolded before considering any changes to its production policy.
This cautious approach is understandable, as Russia would risk jeopardising the OPEC+ pact on oil production by attempting to capitalise on Saudi Arabia’s difficulties for short-term gain. It took Russia and Saudi Arabia two years after the oil price crash of late 2014 to develop the trust
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w w w . N E W S B A S E . c o m Week 37 18•September•2019