Page 8 - NorthAmOil Week 18

NorthAmOil COMMENTARY NorthAmOil
Saudi-Russia-US manoeuvrings
after the latest oil production
agreement
As the ill-fated decision in the courts of OPEC+ to cut the price of oil through opening the taps plays out, more background information on behind-the-scenes manoeuvrings has been rising to the surface
GLOBAL
WHAT:
The dramatic movement in oil prices is playing out at the highest diplomatic levels.
WHY:
The dive in oil prices threatens both US shale and the viability of Russian oil.
WHAT NEXT:
Saudi and OPEC are still key to Russian and US oil prospects.
SEVERAL cross-currents seem to be in play, both in the fateful decision to cut the price of oil in late March and in the sudden rush to try to stem the headlong decline which followed.
The Saudi-Russia difference of view on how much the volume of oil should be cut following the end of the supply agreement on 31 March was dictated by both a desire to exert control over the market, and at the same time to deliver a heavy blow to the US shale industry which had been able to enjoy a free hand outside the dic- tates of the OPEC+ agreement. A third factor in this mixture could well have been Riyadh’s deep unease about the growth of Russian influence in the Middle East, particularly its active support for long-standing enemies of the Saudis such as Iran and the Assad regime in Damascus.
The deepening friction between Moscow and the Saudis certainly marks a change of tune from last autumn, when President Putin was warmly greeted in Riyadh. Russia’s policy to remain out- side OPEC indicates that its main objective is to protect its own interests, and the Saudis’ decision to launch a global price war, taken in response to Moscow’s refusal to co-operate further with Riyadh on influencing oil prices, means they have given up on the notion that they can do business with the Kremlin. Russia now has to cut its oil production down from 11mn barrels per day to 8.5mn bpd, which may be difficult to implement and it may face some technical issues of subsequent oil output resumption in northern regionsofthecountryandattheolderoilfields.
Meanwhile, the US has pressed Saudi Arabia to end its oil price war with Russia. US President Donald Trump gave Saudi leaders an ultimatum in an April 2 phone call, telling Saudi Crown Prince Mohammed bin Salman (MbS) that unless OPEC started cutting oil production, he would be powerless to stop lawmakers from passing legislation to withdraw US troops from
the kingdom, sources familiar with the matter told Reuters.
The threat to upend a 75-year strategic alli- ance, which has not been previously reported, was central to the US pressure campaign that led to the April landmark global deal to slash oil supply as demand collapsed as a result of the coronavirus (COVID-19) pandemic – scoring a diplomatic victory for the White House.
Trump delivered the message to the crown prince 10 days before the announcement of pro- duction cuts. The kingdom’s de facto leader was so taken aback by the threat that he ordered his aides out of the room so he could continue the discussion in private, according to a US source who was briefed on the discussion by senior administration officials.
The oil price crash rooted in COVID-19 dis- ruptions and aggravated by Saudi shenanigans has many US oil firms staring down the barrel of bankruptcy. In mid-April, prices of US bench- mark crude turned negative for the first time ever. Tens of thousands of energy jobs in Repub- lican-controlled states are at risk of vanishing. US lawmakers who previously supported the status quo in US-Saudi relations are calling for a ban on crude imports from the kingdom.
More ominously for Saudi Arabia, the threat posed to the US shale patch has caught the 75-year-old alliance between Washington and Riyadh firmly in the electoral crossfire, heaping pressure on Trump to make good on his signa- turecampaignmottotoput“Americafirst”.
Despite diametrically opposed core values, the US-Saudi relationship has held together for three-quarters of a century on the strength of mutual security and business interests. But the marriage of convenience has been far from frictionless.
There have been ups and downs since the 1973 oil embargo by the Saudi-led OPEC helped
US lawmakers who previously supported the status quo in US- Saudi relations are calling for a ban on crude imports from the kingdom.
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w w w . N E W S B A S E . c o m Week 18 07•May•2020