Russian President Vladimir Putin struck a deal with Saudi Crown Prince Mohammed Bin Salman to extend the Opec+ agreement at current production levels for the rest of this year and potentially into early 2020.
Speaking at the Group of 20 summit in Japan, the Russian president said the extension of output cuts - which expire at the end of June - could be for six or nine months. His comments came ahead of next week’s Opec+ gathering in Vienna where the group is meeting to decide on the crude production strategy in a bid to keep the market balanced.
Saudi Arabia and Russia joined forces in 2016 to manage the global oil market in an effort to prop up prices. The current version of the deal by the so-called Opec+ coalition calls for production cuts of 1.2 million barrels a day.
“We have agreed: we will continue our agreements,” Mr Putin said in Osaka. “In any event we will support the continuation of agreements, both Russia and Saudi Arabia, in the volumes previously agreed.”
The announcement marks the first time a senior leader from the group has indicated the curbs could be needed into 2020. That reflects a sombre outlook for oil supply and demand next year due to a combination of slowing global economic growth and rising US shale output.
The Russia-Saudi deal followed an agreement made earlier in Osaka between the US and Chinese presidents to restart trade talks, and comments by Donald Trump that he wouldn’t impose new duties on Beijing for now.
“The Saudi-Russia deal, combined with a positive outcome from the US-China trade talks at the G20, should allow oil prices to move higher,” said Amrita Sen, chief oil analyst at consultants Energy Aspects in London.
The alliance between Opec and its partners has had a mixed track record of supporting oil prices, in part because some members have at times overproduced. Since Russia and Saudi Arabia came together to manage the market in late 2016, benchmark Brent crude has oscillated between $45 and $85 per barrel. On Friday, Brent futures for September closed at $64.74 per barrel.
The talks between Mr Putin and Crown Prince Mohammed show the commitment of the two countries to ensuring oil-market stability, Russia’s Energy Ministry said. Their discussions also demonstrate a “high level of understanding” between the two producers amid the current oil-market uncertainties, it said.
For Moscow, there’s an extra incentive to extend the curbs by nine months, as Russian oil companies struggle to raise production over the winter. By extending the deal into 2020, Russia could be in a better position to pump more during the spring of next year.
Saturday’s verbal agreement between Mr Putin and Crown Prince Mohammed highlights the importance of the G20 as a key policy-making forum for oil and Opec watchers. Last year, Mr Putin and the crown prince used the summit in Buenos Aires to give their political backing to extend the Opec+ deal into the first half of 2019. A few days later the respective oil ministers met and agreed on the details of cuts.
The G20 in 2016 in Hangzhou, China, also proved pivotal for the oil market, with Mr Putin and the crown prince forging a rapprochement between the world’s top two oil exporters. Since that meeting, the two nations have co-operated on output policy. Opec+ includes all the members of Opec plus a handful of independent producers including Mexico, Azerbaijan and Kazakhstan, as well as Russia.
“The strategic partnership within Opec+ has led to the stabilisation of oil markets” while supporting global economic growth, Kirill Dmitriev, head of the Russian Direct Investment Fund, said on Saturday following the talks.
