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UPDATE 3-Saudi Arabia works on convincing Russia to join oil cuts


Reuters
Updated: 05-12-2018 20:41 IST
Saudi Arabia sought to persuade Russia on Wednesday to cut oil production substantially with OPEC next year in an attempt to arrest a decline in the price of crude and prevent another global glut.

OPEC meets on Thursday in Vienna, followed by talks with allies such as Russia on Friday. The producer group's de facto leader, Saudi Arabia, has indicated a need for steep reductions in output from January but has come under pressure from U.S. President Donald Trump to push oil prices lower.

Russian Energy Minister Alexander Novak told reporters he had held a "good" meeting with his Saudi counterpart Khalid al-Falih on Wednesday and that they would have more talks.

Saudi Arabia has indicated it wants the Organization of the Petroleum Exporting Countries and its allies to cut output by at least 1.3 million barrels per day, or 1.3 percent of global production.

Riyadh wants Moscow to contribute at least 250,000-300,000 bpd to the cut but Russia insists the amount should be only half of that, OPEC and non-OPEC sources said.

Russia's TASS news agency quoted an OPEC source as saying OPEC and its allies were discussing the idea of cutting output next year by reverting to production quotas agreed in 2016.

The move would mean reducing production by more than 1 million bpd. Saudi Arabia, Russia and the UAE have raised output since June after Trump called for higher production to compensate for lower Iranian exports due to new U.S. sanctions.

Russia has so far resisted steep production cuts.

A source close to the Russian Energy Ministry said: "No one is eager to cut unless there is an emergency. It is the United States where we are seeing the bulk of the increase in oil output. OPEC and Russia will be very careful about voluntary 'blood letting'."

Russia, Saudi Arabia and the United States have been vying for the position of top crude producer in recent years. The United States is not part of any output-limiting initiative due to its strict anti-trust legislation and fragmented oil industry.

TRUMP RAISES PRESSURE

Oil prices have fallen by almost a third since October to around $62 per barrel after Saudi Arabia raised production to make up for the drop in Iranian exports.

Washington also gave sanctions waivers to some buyers of Iranian crude, further raising fears of an oil glut next year.

"Hopefully OPEC will be keeping oil flows as is, not restricted. The world does not want to see, or need, higher oil prices!" Trump wrote in a tweet on Wednesday.

Possibly complicating any OPEC decision is the crisis around the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October. Trump has backed Saudi Crown Prince Mohammed bin Salman despite calls from many U.S. politicians to impose stiff sanctions on Riyadh.

"How can the Saudis cut substantially if Trump doesn’t want a big cut?" said Gary Ross, chief executive of U.S.-based Black Gold Investors and a veteran OPEC watcher.

"Trump is worried about the Fed and inflation. So he wants low prices now. Also if Saudis are obnoxious with a deep output cut, it will spur the Democrats in Congress to go more actively for the Nopec legislation and the withdrawal of U.S. support for the Saudi-backed forces in the war in Yemen," Ross said.

The Nopec legislation being discussed by U.S. lawmakers could make it possible to sue Saudi Arabia and other OPEC members for price fixing.

Bob McNally, president of U.S.-based Rapidan Energy Group, said OPEC was stuck between a rock and a hard place given pressure from Trump on one hand and the need for higher revenues on the other.

"We think OPEC will try to come up with a fuzzy production cut ... It won’t be called a cut but will effectively mean a cut, which will also be difficult to quantify," McNally said.

(Additional reporting by Rania El Gamal and Ahmad Ghaddar; Writing by Dmitry Zhdannikov; Editing by Dale Hudson; Graphics by Amanda Cooper)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)


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