OPEC, Russia Oil Deal to Stay in Place - With Perhaps Input From the U.S.

Russia says it's ready to talk with the U.S. on how to maintain global oil market balance. File Image / Pixabay

With Iran's crude sales falling due to the U.S. sanctions and countries such as Venezuela struggling to avoid outright economic collapse, it was perhaps inevitable that Mohammad Barkindo, secretary general for the Organization of the Petroleum Exporting Countries (OPEC), would tell Reuters that his cartel will keep working with other oil producers to manage global supplies in the face of demand for crude facing "headwinds."

Specifically, Barkindo reiterated the message OPEC and its allies have been delivering for close to a year now that the output reduction deal between Saudi Arabia, Russia, and other producers needs to become permanent.

He said, "There is no viable alternative on the table other than to institutionalize and make this cooperation between ourselves and our good partners from non-OPEC in a permanent fashion."

As if to support Barkindo's plea, if only obliquely, Alexander Novak, energy minister for Russia, stated on Monday that "I think we have the possibility to discuss any possible scenarios"- referring to the prospect of a deal between OPEC and other producers (a group known as OPEC+) being formalized and increasing output from levels agreed in June in order to ward off undue market tightening.

Novak also remarked that OPEC+ would discuss supply and demand forecasts for the fourth quarter and that Russia was ready to discuss cooperation with the U.S. to balance the oil market; he did not elaborate on the latter point other than to say such discussions were not currently being held.

The prospect of Russia and the U.S. working together to achieve global supply and demand objectives is intriguing given the long-standing rivalry between the U.S. and OPEC; but it makes sense when one considers that both the U.S. and Russia have a strong mutual ally in energy matters, namely, Saudi Arabia. 

Moreover, analytical wisdom holds that these three countries may have the production clout to offset the crude shortages resulting from the Iran sanctions and economic chaos in Venezuela; and on that score, some good news was delivered Monday by the Energy Information Administration, which reported that output from seven major shale formations in the U.S. is expected to rise by 79,000 barrels per day (bpd) to 7.6 million bpd in October.

The EIA also disclosed that producers drilled 1,520 wells and completed 1,282 in the biggest shale basins in August, leaving total drilled but uncompleted wells up 238 at a record high 8,269 - the most wells drilled and completed in a month since early 2015.

While concern over market tightening has in recent months reached levels of near-hysteria, the numbers reported by energy agencies along with the maneuverings of organizations such as OPEC strongly suggest that producers are ready and able to meet any challenge head on; and in terms of current global inventories we're in good shape, according to the International Energy Agency, which last week reported that supply has reached a record 100 million bpd.