Russia warns of weakening oil; holds out on Opec+ deal


A worker checks the valve of an oil pipe at an oilfield owned by Russian state-owned Bashneft near the village of Nikolo-Berezovka, northwest of Ufa, Bashkortostan, Russia (file). While Saudi Arabia has wanted for some time to prolong the output cuts, Russia has been less resolute, saying it’s better placed to withstand lower prices.

Russia and Saudi Arabia, the two largest producers in the Opec+ coalition, voiced concerns that falling oil demand could send prices below $40 a barrel as they met in Moscow yesterday. The energy ministers of both countries have been at pains to stress a common view on the crude market, saying on Friday they’ll continue to co-operate once production curbs expire, though Russia is yet to commit to an extension of the deal as it weighs demands from its oil companies. “Today there are big risks of oversupply,” Russian Energy Minister Alexander Novak said in the Russian capital, where he talked with his Saudi counterpart at a meeting of the countries’ intergovernmental commission. “We’ve agreed that we need to run a deeper analysis and to see how events unfold in June,” before making a decision on the future of output cuts with Opec+.

Novak conceded that $40 a barrel or less wouldn’t be out of the question if Russia, Saudi Arabia and their Opec+ partners fail to reach a decision on extending curbs. Russian Finance Minister Anton Siluanov earlier warned that such a scenario could send prices below that level. While Saudi Arabia has wanted for some time to prolong the cuts, Russia has been less resolute, saying it’s better placed to withstand lower prices. Both ministers are due to meet colleagues from the Organization of Petroleum Exporting Countries and allied producers at talks in Vienna in the coming weeks to decide on the future of the deal. Saudi Energy Minister Khalid al-Falih has talked up the prospects for an extension, and said yesterday that producer countries would strive to prevent a price slump below $40. “Both at the bilateral and the Opec+ level, we work in order to take preventive steps so as not to allow that scenario to happen,” al-Falih said in Moscow.

Brent crude rose above $63 on Friday after al-Falih and Novak suggested they would continue to manage the market, though they made no specific commitments on volumes. Both ministers may be in Japan for the Group of 20 summit this month, giving them “an opportunity to further calibrate our positions,” al-Falih said in an interview with Russian news service Tass. The G-20 ministerial meeting on energy is scheduled for June 15-16 in Nagano, while the final leaders’ summit will take place on June 28-29 in Osaka. Oil prices climbed 35% in the first four months of the year as Opec reined in output while countries from Iran to Venezuela suffered involuntary cutbacks in supply. Yet crude has since dropped more than 10% as the US-China trade war fuels concern that demand will ebb. While Russia may be happier with a lower oil price than Saudi Arabia, the Opec+ accord has boosted its federal budget amid higher prices for energy commodities.Russian President Vladimir Putin has shown he’s reluctant to walk away from the agreement.

Sources and photo-credits: Gulf Times, Bloomberg