Saudi Arabia works on convincing Russian Federation to join oil cuts

Cornelia Mascio
Dicembre 6, 2018

OPEC's de facto leader, Saudi Arabia, has indicated a need for steep output reductions from January, fearing a glut, but Russian Federation has resisted a large cut.

Such a move would mean cutting production by more than 1 million bpd.

That has put OPEC kingpin Saudi Arabia in a delicate position - Riyadh is keen not to incur Trump's wrath as relations between the two countries become increasingly complicated in the wake of the murder of opposition journalist Jamal Khashoggi.

USA special representative for Iran, Brian Hook, met with Saudi Energy Minister Khalid Al-Falih in Vienna on Wednesday, according to a person familiar with the matter.

The group secured the participation of Russian Federation for six months of output curbs starting in January, Oman's Oil Minister Mohammed Al Rumhy told reporters in Vienna as he left the meeting on Wednesday.

Oil prices have fallen by nearly a third since October to around $62 per barrel after Saudi Arabia raised production to make up for the drop in Iranian exports.

"There is little disagreement among OPEC members over the need to cut, but there is not yet consensus over how much", said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.

Oil prices have fallen by nearly a third since October to around $62 per barrel after Saudi Arabia raised production to make up for the drop in Iranian exports.

The OPEC+ coalition is desperate to shore up oil prices after a slump of more than $20 a barrel since October.

Donald Trump has often complained about OPEC this year as higher crude oil prices have raised fuel cost.

WTI has been a choppy play in North American trade on Wednesday ahead of the OPEC meeting in Vienna tomorrow. "The World does not want to see, or need, higher oil prices!" Trump has backed Saudi Crown Prince Mohammed bin Salman despite calls from many United States politicians to impose stiff sanctions on Riyadh.

"Trump is anxious about the Fed and inflation".

Although Russia, the largest producer in OPEC+, agreed to cut in principle, the eventual size of their contribution will be key to putting together the final deal. "Also if Saudis are obnoxious with a deep output cut, it will spur the Democrats in Congress to go more actively for the Nopec legislation and the withdrawal of US support for the Saudi-backed forces in the war in Yemen", Ross said. So he wants low prices now.

The Nopec legislation being discussed by US lawmakers could make it possible to sue Saudi Arabia and other OPEC members for price fixing. This comes as US crude oil is now trading at $53 a barrel, which is down from a four-year high.

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