Russian Federation and Saudi Arabia, the two oil giants, have agreed on certain measures, joint or in cooperation with other oil producers, to be taken with a view to stabilize the oil market, tackle weak prices and rein of oversupply, as well as maintain stability and provide sustainable level of long-term investment, TASS reported. Nevertheless, the two countries – which are now the world’s biggest oil producers failed to agree on a production freeze plan.
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Energy ministers from Russian Federation and Saudi Arabia said Monday that their countries had agreed to “act together” to lift the price of oil out of its two-year slump, though they provided few details as to how they planned to achieve that goal.
A glance at the tanker market might lead one to believe that too much oil is being produced.
The global benchmark on Monday hit a near one-week high of $49.40 after the Russia-Saudi news, but has since pared gains after Saudi Energy Minister Khalid al-Falih said there was no need now to freeze production.
North Sea Brent crude oil futures prices fell almost US$2 per barrel after the statement, from a high during the day of $49.31 to about $47.37 per barrel in afternoon trading. November Brent crude added six cents, or 0.1%, to $47.69 a barrel. Oil palm-related firms may be closely watched as higher crude oil prices could generate demand for palm oil for biodiesel production.
“The announcement by Saudi Arabia and Russian Federation contains no specifics about how to reduce global supply, which is what is needed to speed the rebalancing of oil markets and start to draw down inventories”, Alex Schindelar, an editor at the London-based Energy Intelligence group, said in response to emailed questions.
He said countries now recognize that Iran should be allowed to continue raising production as sanctions have been lifted against the country. Saudi Arabia said that it would sign the agreement only if Iran also signed it, although it had not voiced such conditions earlier. The favoured son of King Salman, MBS exerts great control over the Saudi economy, including plans to transform it through listing a stake in state oil company Saudi Aramco. Iran refused to discuss the oil production freeze saying it was unwilling to “give up its historic production quota”.
The two countries stopped short of outlining specific production cuts, and skepticism remains over whether any will be forthcoming, given a failure by major producers to strike deals on output cuts in recent years.
“They don’t want to see prices fall back to the lows”, said Petromatrix analyst Olivier Jakob in Zug, Switzerland”.
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