Page 6 - FSUOGM Week 26

FSUOGM COMMENTARY FSUOGM
Saudi Arabia, Russia agree extension for OPEC cuts
OPEC+ is set to ratify a nine-month extension of the Declaration of Co-operation, keeping 1.2mn bpd off crude markets in a bid to create greater price stability
RUSSIA
WHAT:
Russian President Putin rst announced a deal after speaking to the Saudi Crown Prince at the G20 summit.
WHY:
The announcement comes as OPEC and 10 non-OPEC members, led by Russia, meet to determine the course of action for their deal on cutting oil production.
WHAT NEXT:
While an agreement seems to have been reached this time around, Iran has taken the opportunity to sow seeds of discontent among OPEC members about Saudi’s leadership.
RUSSIA has agreed with Saudi Arabia to extend the prevailing deal with OPEC on oil output cuts by six to nine months.
At the time of going to press, OPEC had not rati ed an extension to their so-called Declara- tion of Co-operation (DoC), but Middle East Oil & Gas (MEOG) understands that all indications are that the 1.2mn barrel per day (bpd) reduction will be prolonged today by nine months from its current expiry date of July 7. OPEC and the non- OPEC producers including Russia are holding meetings this week regarding the DoC.
Speaking two days ahead of the OPEC+ meet- ing, during the G20 summit in Japan a er talks with Saudi Arabian Crown Prince Mohammed bin Salman (MbS), Russia’s President Vladimir Putin said: “We will support the extension, both Russia and Saudi Arabia. As far as the length of the extension is concerned, we have yet to decide whether it will be six or nine months. Maybe it will be nine months.”
Reuters quoted Kirill Dmitriev, the CEO of Russia’s Direct Investment Fund, as saying that the deal had increased Russian budget revenues by more than 7tn rubles ($110bn) since it was agreed in 2017.
Meanwhile, the suggestion that the deal could
be extended by up to nine months is likely to mean avoiding raising output during periods of lower demand in the northern hemisphere win- ter, a point noted by Russian Energy Minister Alexander Novak.
Riyadh drove through the deal for OPEC and a Russian-led group of 10 non-OPEC producers to take a combined 1.2mn bpd o the market for an initial six months, in the wake of prices having sunk to below $50 per barrel.
From the outset, the government pub- licly expressed its willingness to cut in excess of its pro-rata share to achieve the deal’s price-strengthening aims. However, for how long the kingdom is willing to maintain such restraint given the impact on the oil-dependent state budget is unclear.
Decision-making by Aramco as the de-facto head of OPEC is sure to ruffle feathers, par- ticularly in Iran, and Saudi Oil Minister Khalid al-Falih sought to ease tensions around the DoC, telling reporters that while Riyadh was in favour of a nine-month extension, Saudi and Russian o cials would “have to talk to other ministers.”
However, al-Falih’s Iranian counterpart, Bijan Zanganeh, took almost instant exception to Sau- di’s ‘unilateralism’, saying that it was a threat to
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w w w . N E W S B A S E . c o m Week 26 03•July•2019