Oil Markets: Saudis, Russia Again Send Signals That Geopolitical Strife Won't Affect Their Output

Russia's growing independence could render hostile U.S. sanctions near-ineffective. File Image / Pixabay

While U.S. president Donald Trump continues to inspire worldwide fear and loathing due to his aggressive stance against China, Iran, and many other nations he believes has compromised American interests, his hawkish stance has if nothing else inspired major oil producers to insist that all will be well with crude supply in their own backyards - the latest boosters in this regard being Saudi Arabia and Russia.

Khalid Al Falih, energy minister for the Saudis who is also chairman of Saudi Aramco, said in a company report on Friday that Aramco remains committed to meeting future oil demand through continued investments, "as well as the development of pioneering technology to make petroleum energy more sustainable and accessible."

The report also stated that Aramco "will maintain its position as the world's leading crude oil producer by production volume by tempering production from mature fields, accelerating younger fields and secondary reservoirs, and developing fresh reserves from new increments."

According to the report, Aramco has discovered two new oil fields, Sakab and Zumul, and a gas reservoir in the Sahba field; meanwhile, it is preparing the Midyan non-associated gas field  to produce 75 million standard cubic feet per day of non-associated gas and 4,500 barrels of condensate per day.

With regards to Russia, Dmitry Marinchenko, director at Fitch Ratings, stated that, "The main driver of the Russian oil industry's profitability is the oil price denominated in roubles and it is currently posting new records as the rouble is getting weaker - hence, the sanction noise often even has a positive impact on Russian oil stocks."

Marinchenko was referring to potential new U.S. sanctions against Russia that would include curbs on the operations of state-owned Russian banks, restrictions on holding Russian sovereign debt, as well as measures against western involvement in Russian oil and gas projects.

Reuters points out that if the sanctions were imposed, they "would lead to a major spike in oil prices and hit the United States itself hard as it is the world's largest oil consumer," given that Russia produces more than 11 percent of global crude.

Also, Reuters points out that long gone are the days when the Russian oil industry's borrowing came from Western banks or export-backed facilities with trading houses and major oil companies.

As for Russia's weakest link, said to be its reliance on high-end Western production technology, it too is changing due to imports from China and local production of drilling equipment; this caused Marinchenko to state, "It is clear that new wide-scale sanctions on technology will not become the start of an end for the Russian oil industry, especially if Europe doesn't join them."

While the Saudi and Russian examples contribute to the notion that all is well with the crude market despite geopolitical tensions, analysts still warn that turbulent times lie ahead: the International Energy Agency recently pointed out that as the oil sanctions against Iran take effect later this year, "maintaining global supply might be very challenging and would come at the expense of maintaining an adequate space capacity cushion."