Daily Management Review

No Talks Going On With Russia Over New Oil Agreement, Says Saudi Arabia


No Talks Going On With Russia Over New Oil Agreement, Says Saudi Arabia
Saudi Arabia is holding no talks with Russia on striking a deal to create a balance in the global oil market, the kingdom said on Friday, even though there is pressure from the United States to prevent a price rout of oil with the fall in demand because of the coronavirus pandemic and amid efforts by Russian to make up with Saudi Arabia, the de facto leader of the oil cartel Organization of the Petroleum Exporting Countries (OPEC). 
Earlier this month, an agreement between OPEC and other oil producing countries including Russia that was struck three years ago to cut oil production to prop up global oil prices broke down after Russia refused Saudi Arabia’s proposal for deeper production cut. After the breakdown of the partnership and the agreement, Riyadh announced its intention to increase production to record levels to gain market share.
The increase in production and supply of oil to the global market coincided with strict restrictions on movement and travel imposed by governments all across the world to prevent the spread of the coronavirus which saw demand for oil crushing down. This has resulted in the Brent crude to touch a 17-year low below $25 a barrel while thereby reducing income of oil exporting economies.  
“There have been no contacts between Saudi Arabia and Russia energy ministers over any increase in the number of OPEC+ countries, nor any discussion of a joint agreement to balance oil markets,” an official from Saudi Arabia’s energy ministry said, referring to the wider grouping of oil producers.
This comment was made following an earlier suggestion by a senior Russian official about the possibility of cooperation of a larger number of oil producers with OPEC and Russia – referring indirectly to the United States which is one of the largest oil producers of the world and has never cut down on production.
“Joint actions by countries are needed to restore the (global) economy ... They (joint actions) are also possible in the OPEC+ deal’s framework,” said Kirill Dmitriev, the head of Russia’s sovereign wealth fund.
In the earlier agreement with the OPEC, the chief negotiators from Russia were Dmitriev and Energy Minister Alexander Novak. The earlier pact between the parties expired officially on March 31. Nothing was mentioned about the number of oil producing countries that could be part of a new agreement.
There have been diverging opinions among the officials and oil executives in Russia about the need for production cuts. While the head of Kremlin oil major Rosneft, Igor Sechin, has been critical of the production cuts, arguing that it provides an opportunity to the otherwise less competitive US shale industry, Dmitriev and Novak hare known to support cooperation among oil producers to limit production.
The possibility of the US working together with OPEC to trim oil production has for long been viewed as an impossible scenario. While the antitrust laws in the US is a factor, US president Donald Trump has been critical of the role of the OPEC – complaining that the production cuts was leading to higher prices for fuel for the end customers.