Russia and Saudi Arabia say they have agreed to expand their cooperation on oil and gas matters after having teamed up to help bolster oil prices in the past two years.
Russian President Vladimir Putin, Saudi Crown Prince Muhammad bin Salman, and the two nations’ energy ministers reached the agreement in Moscow on June 14 before the two countries’ soccer teams vied in the first World Cup match, officials said.
Saudi Energy Minister Khalid al-Falih and his Russian counterpart Aleksander Novak said in a joint statement that the world’s two largest oil producers would continue their market management efforts by striving “for a balanced market that is supported by a reliable and sufficient supply” of oil.
The bilateral agreement was endorsed by Putin and Salman, who said “without a doubt, we would like to continue this cooperation and move forwards.”
Salman said his country, which is the largest oil producer in the OPEC oil cartel, and Russia, which is the world’s largest oil exporter, have forged “a very historic OPEC-plus agreement” to continue the cooperation between OPEC, Russia, and other non-OPEC producers that began in 2016.
“We will continue working together in the most important area for us,” Putin said.
The 2016 agreement to freeze oil production was forged amid a dramatic fall in oil prices that had helped plunge major oil-producing countries into economic downturns while slashing the oil tax revenues they depend on for spending on military and social programs.
Premium oil prices in early 2016 had plummeted below $30 a barrel. But after recovering and stabilizing around $50 a barrel in 2017, they soared this year to as high as $80 a barrel in London trading.
OPEC is set to meet on June 22 in Vienna to decide the future of the 2016 production agreement, with Russia, Kazakhstan, and other non-OPEC partners due to join the meeting a day later.
Riyadh and Moscow have both voiced support for easing the production freeze to moderate the high prices which have prompted increasing complaints among consumers.
They also have said they want to prevent a supply shortage resulting from recent production declines in Venezuela and potential output declines in Iran when U.S. sanctions go back into effect in November.
Novak said on June 14 that OPEC and its partners should consider raising production by as much as 1.5 million barrels a day, in what would amount to a near-complete reversal of the 1.8 million barrels of cuts put in place in 2016.
But Iran, Iraq, and Venezuela — happy with the higher prices and unable to significantly raise their production — have strongly opposed any attempts to modify the 2016 agreement.
“We don’t need extra barrels in the market,” Iran’s OPEC Governor, Hossein Kazempour Ardebili, told S&P Global Platts this week.
Saudi and Russian officials did not offer many details on what their agreement to extend cooperation might involve.
In their joint statement, Novak and Falih credited their existing agreement for leading “to the stabilization of the oil market.”
They said that in the future, they would seek to “support investment in the oil and gas sector to meet the growing demand for oil and compensate for natural decline in production.”
Many officials in Western countries view production agreements like the one between Russia and the Saudis as monopolistic behavior that should be stopped by antitrust authorities. U.S. oil producers, for example, have never joined such agreement out of fear they might become targets of U.S. antitrust lawsuits.
U.S. President Donald Trump this week complained about the trecent sharp rise in oil and gasoline prices, and blamed it on OPEC. Rising gasoline prices can be a source of disgruntlement for voters in the United States and elsewhere.
“Oil prices are too high, OPEC at it again. Not good!” Trump tweeted on June 13.
His tweet prompted a sharp response from Iran, whose oil ministry –like many private oil analysts — blames the particularly steep rise in recent weeks on the U.S. imposition of sanctions on Venezuela and Iran.
“You cannot place sanctions on two OPEC founder members and still blame OPEC for oil price volatility,” Ardebili said. “This is business, Mr. President. We thought you knew it.”
Some analysts said Trump’s tweet was intended to put pressure on OPEC at its meeting next week to ease or abandon its 2016 deal with Russia to curb output. But they say it might backfire by prompting Iran to fight harder against any easing.
“I think the Trump tweet makes the Saudis’ job of getting compromise at the OPEC meeting tougher,” Joe McMonigle, senior energy policy analyst at Hedgeye Potomac Research in Washington, told Reuters.
With reporting by Reuters, Platt’s.com, AP, and TASS