Page 5 - MEOG Week 13

MEOG Commentary MEOG
Saudi Arabia to dial back its plan to flood the oil market after a price war with Russia helped send prices tumbling to their lowest level in almost two decades.
While its status as the world’s biggest pro- ducer means the US is sheltered in part from the collapse, it is still calling on the Saudis to exercise restraint. Earlier, the US made its most direct intervention yet, urging Riyadh to “rise to the occasion and reassure” energy markets at a time of economic uncertainty.
Secretary Pompeo spoke to Crown Prince Mohammed bin Salman (MbS) on the eve of a conference call between the leaders of the Group of 20 on the global pandemic and its economic fallout. “The secretary stressed that as a leader of the G20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occa- sion and reassure global energy and financial markets when the world faces serious economic uncertainty,” the State Department said last Wednesday.
The US view is that the oil glut aggravates an already difficult economic outlook, and it wants all nations to work together to reassure energy markets. “This diplomacy matters,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former oil official at the White House. “Both Republican and Democrat White House administrations have asked Saudi Arabia to help the global economy during crises, and in the past they’ve responded.”
saudi view
The price war was unleashed after Saudi Ara- bia failed to convince Russia to agree on deeper
production cuts for the OPEC+ alliance. So far, the thinking in Riyadh remains that only a col- lective output cut, rather than unilateral action by the Saudis, can turn the market around.
A new agreement to stabilise oil markets is possible if more nations support the initiative, according to the head of the Russian Direct Investment Fund (RDIF), Kirill Dmitriev.
In an interview with Reuters, the sovereign wealth fund chief said that the coronavirus epi- demic had become a “perfect storm” to trigger a new global financial crisis that would result in recession. To offset the economic fallout of the outbreak, countries should unite, including in imposing new output curbs to end the oil mar- ket turbulence.
Russia, which is not a member of OPEC, was one of the key supporters of the production cut pact with the alliance, Dmitriev stressed, adding that the deal brought in more than 10tn rubles (nearly $127bn) to the country’s budget.
“It was not Russia that made [the] decision to boost output and withdraw from the OPEC+, but we [the RDIF] believe that we can [go] back to the deal,” Dmitriev said, adding that Russia maintains dialogue with Saudi Arabia, as well as with some other nations. “We see that if the number of OPEC+ members will increase and other countries will join there is a possibility of a joint agreement to balance oil markets,” he added, without elaborating which countries could join the deal.
Meanwhile, the Saudis hope to clear out dead wood. They are interested in higher oil prices in the long term but are willing to suffer through lower oil prices first. The question may be: “who will blink first?”™
Week 13 01•April•2020 w w w . N E W S B A S E . c o m P5