Russian President Vladimir Putin and and Saudi Crown Prince Mohammed bin Salman will discuss how to boost oil production while maintaining their petro-alliance when they meet in Moscow on Thursday to watch the football World Cup’s opening match between the two countries.
The world’s largest oil exporters are negotiating how to rework their unprecedented, and successful, deal to control oil production as US sanctions on Iran and the collapse of the Venezuelan petroleum industry threaten to send crude skyrocketing. They must also contend with President Donald Trump, who used his Twitter account on Wednesday to attack Opec for artificially inflating prices.
"This is the most political Opec meeting in a long time," said Amrita Sen, chief oil analyst at consultant Energy Aspects.
Both Saudi Arabia and Russia have proposed plans for the so-called Opec+ group that would add as much as 1 million barrels a day, about 1 per cent of global output, although Riyadh prefers a smaller increase. The back and forth signals major differences remain, even between Riyadh and Moscow, who’ve worked very closely over the past two years.
Reaching an understanding between Russia and Saudi Arabia may prove easier than obtaining a wider agreement among the 24 countries bound by the agreement first struck in late 2016. Opec meets in Vienna on June 22 and Iran, Venezuela and Iraq have publicly set themselves against a production increase.
"An output increase by the four main producers [Kuwait, Russia, Saudi Arabia, and UAE] looks inevitable," Ed Morse, head of commodities research at Citigroup in New York, said in a note to clients. But he warned that less than 10 days for the meeting the size and timing of any increases was still up in the air.
Russia and Saudi Arabia forged their unlikely an alliance in 2016 after face-to-face meetings between Mr Putin and Prince Mohammed. The diplomatic opening paved the way for Moscow joining Opec in cutting production for the first time in more than a decade, with 24 countries agreeing to curb output by 1.8 million barrels a day in order to eliminate a supply glut that was weighing on prices.
Since then, prices have rallied close to $80 a barrel. Saudi Oil Minister Khalid Al Falih and his Russian counterpart Alexander Novak, who will also attend today’s match, have struck up a close working relationship, speaking regularly by phone and making several joint media appearances.
Many nations have gone further than their pledged cuts. Saudi Arabia said it was cutting deeper to lead by example. Others, notably Venezuela, have experienced involuntary declines in production due to problems in their oil industries. In May, the group’s total reduction added up to almost 2.2 million barrels a day, according to the International Energy Agency (IEA).
On Wednesday, the IEA said combined output from Venezuela and Iran could fall a further 30 per cent next year due to US sanctions and economic upheaval. That’s one reason the US is putting diplomatic pressure on Saudi Arabia and other Opec members to increase production, hopefully pushing down gasoline prices, before the US votes in midterm elections that could decide which party controls Congress.
"Oil prices are too high, Opec is at it again. Not good!,” the president tweeted on Wednesday morning.
The US is putting pressure on Opec members to increase production as global benchmark prices flirt with $80 a barrel, raising pump prices in the months before the US votes in midterm elections that could decide which party controls Congress.
“The Trump administration is trying to intervene in the affairs of a sovereign organisation,” said Iran’s Opec governor, Hossein Kazempour Ardebili. Such attempts have failed in the past and “they will also fail” this time.
Mr Trump’s tweet drew lots of responses, including one from oil hedge fund founder Pierre Andurand, who expects prices will be above $150 a barrel in less than two years. “At current prices US oil producers are still losing money. Adding to their $500bil of losses since 2007... so if all production growth is unprofitable what makes oil prices high?? Maybe they are actually way too low..."