EMEA News
Saudis Continue Push for OPEC Cutback Extension as Analyst Says It Would Make Sense For Russia to Quit the Deal
Despite Saudi Arabia working overtime to develop a consensus with allies and extend the Organization of the Petroleum Exporting Countries' (OPEC) production cutback initiative through the end of next year, it is unclear whether Russia is on board as the Saudis claim or poised to quit the deal due to current $60 per barrel oil prices.
Moreover, Chris Weafer, senior partner at Macro-Advisory, says the latter prospect makes "perfect sense" because it would allow the former Soviet Union to continue diversifying its economy away from oil dependency.
Plus, a weaker ruble - which occurs with oil closer to the $50s than the $60s - would be much better for its economy; thus, Weafer said if oil stays in the $60 to $65 per barrel range, which OPEC has taken credit for achieving via its cutbacks, Moscow's support for a deal extension beyond March next year would be "very unlikely."
The Saudis of course want higher prices in order to add value to their Initial Public Offering of state-owned Saudi Aramco, and therefore it's unsurprising that Khalid Al-Falih, energy minister for the kingdom, claims he is "fully convinced" Russia will be "fully on board" if a resolution is made at OPEC's annual meeting later this month.
Al-Falih's extraordinary lobbying efforts of late on behalf of an extension are also due to the fact that despite OPEC's persistent rhetoric, the cutbacks to date haven't had the the desired effect of wiping out global crude surplus and bringing the market back to a meaningful supply and demand balance.
On the sidelines of the United Nations climate conference in Bonn, Germany, Al-Falih told reporters that "We need to recognize that by the end of March we're not going to be at the level we want to be which is the five-year average, that means an extension of some sort.
"We have gone over 50 percent in reducing excess inventories but that means we still have some excessive inventories that we need to drain."
As for the current relatively high price of crude, he said, "I am not distracted by short-term gyrations in prices and I certainly don't spend time looking at hedge funds and the flows into financial investment instruments."
It's worth noting that Russian officials earlier this year agreed the OPEC extension was necessary, but as oil prices escalated, the mantra changed with Alexander Novak declaring that "we would need to analyze a lot of data in order to understand the picture at the time of taking this decision, and so this is why we believe it could be taken at a later date."
