Russia Says Saudi Has Proposed Output Cuts, Saudi Denies

Oil prices spiked 5% to near $35/bbl in intraday trading Thursday following reports that Russia’s energy minister was prepared to convene with Saudi-led OPEC to discuss the possibility of an oil output cut. OPEC delegates have reportedly denied that there's a planned meeting. As we explore below, there are very significant obstacles to coordinated action. So far, this is just talk. But because this "talk" involves the world's top 2 oil exporters, the market is responding, and oil prices are rising.

Russia Says There's A Saudi Proposal
On Thursday, Russian Energy Minister Alexander Novak said that Saudi Arabia has proposed to cut oil output by up to 5% per country in order to bolster oil prices which have fallen ~70% since the summer of 2014. This translates to an output cut for Russia of around 500,000 bpd. The Financial Times reports that the two countries have been in discussions for nearly 18 months about the price collapse, but haven't come anywhere near making an agreement.

Saudi Denies
According to a Bloomberg report later Thursday, four OPEC delegates who spoke to the news agency said they had not heard of any planned talks. One Gulf delegate told Bloomberg that Saudi did not propose the 5% output cut. One Gulf delegate told The Wall Street Journal that the production cut was proposed by Venezuela and Algeria, but not Saudi. However, that delegate told the WSJ that Saudi and its Gulf peers "are ready to cooperate with others" to bring stability to the oil market.

Reuters earlier quoted Russia's Novak as saying, "Indeed, these parameters were proposed, to cut production by each country by up to 5 percent...This is a subject for discussions, it's too early to talk about," he said.

Novak also told reporters that a meeting between OPEC and non-OPEC members' oil officials has been proposed for next month to discuss the oil market.

Russia Set For Record Production AGAIN
Even amid this news, Bloomberg is reporting Thursday morning that Russia is set to once again exceed a post-Soviet record in oil production. The country is on a trajectory to hit 10.89 M/bpd for the month of January- representing an increase of 83,000 bpd, according to Bloomberg estimates. That would be the largest monthly rise since September 2014.

Bloomberg reports that Russian industry officials and Novak discussed coordinated action with OPEC Wednesday night. Kremlin spokesperson Dmitry Peskov was quoted as saying, "The issue of oil-market volatility is being actively discussed...It is too early to predict the outcome of these talks.”

Bloomberg reports that Transneft CEO Nikolay Tokarev, who participated in the talks, told the media that need for dialogue with Saudi Arabia about the oil market and the possibility of participating in talks with the Saudi-led, 13-member group were discussed at Wednesday night's meeting.

There Are MANY Barriers To Coordinated Action
Still, OPEC's Gulf states are publicly adhering to the group's market share strategy that it has firmly abided by through the last year-and-a-half. Anas Al-Saleh, Kuwait's acting oil minister, reportedly said Tuesday that OPEC will not curb output unless other producers cooperate. This has been a mantra of Saudi Oil Minister Ali Naimi throughout the downturn as well.

There remain several other significant barriers to coordinated action. Iran is getting ready to boost exports by 500,000-1 M/bpd. Recall also that Saudi and Iran's geopolitical rivalry is now also being expressed by oil production. Iran has been let out of the cage.

As relations between the two countries have further deteriorated, both sides are now fighting in proxy wars in Yemen and Syria. Adding to this geopolitical mess is the fact that Russia has joined Iran in supporting Syrian President Bashar al-Assad.

MagicBishop:
Saudi Arabia will never cut output now that Iran is back in the game.

Prior to lifting of sanctions on Iran, the Saudis were pumping out more oil that is required in order to compete against US Shale oil. For Shale Oil to be profitable at the current technology being utilised to harness it, conventional crude must be expensive for it to compete.

Now that Iran is back in the game, the Saudis will pump more into the market to stall or slow Iranian economic development.

The Saudis are committing economic suicide to hurt Iran.

At first they pumped more into the market on the behest of the US to hurt Russian mono economy which is by and large dependent on crude exports to Europe.

I don't see the Saudis cutting now given the tensions with Tehran.

The only advantage the Saudis have is their huge external reserves which they are drawing from to offset lower earnings from oil sales.

In 3mths time I expect crude prices to fall well below the $20 mark.

demarc001:
Hope for Buhari

vedaxcool:
Unless our foreign appetite is curbed, expecting oil price to rebound soon might be banking on a non existent life line.

NavierStokes:


but then its only a "may" because it "may" also become a reality soonest . As for curbing our appetite for foreign goods, I am of the opinion that its another issue on its own, even the much touted chinese, with all their internal production, still have an extremely large appetite for foreign goods, as evidenced in the numbers of chinese you find in almost every designer shop, from London to Milan to Zurich etc.

vedaxcool:


Anyone who cannot live within his means is heading for disaster whether those who cannot live within our current reality like it or not govt would not pander to their longer throat. Chinese are rich we are not.

lionness:
This is a power game between the Oil-Power Players. Saudi is one of the richest nations on earth, and with its staunch American ally, I dont think it will dance to Russia's tune. I think OPEC is just another rubbish controlled by America through their Saudi Puppets. Those royal $hit-heads wont stop twerking to American crap!

MagicBishop:
Saudi Arabia will never cut output now that Iran is back in the game.

Prior to lifting of sanctions on Iran, the Saudis were pumping out more oil that is required in order to compete against US Shale oil. For Shale Oil to be profitable at the current technology being utilised to harness it, conventional crude must be expensive for it to compete.

Now that Iran is back in the game, the Saudis will pump more into the market to stall or slow Iranian economic development.

The Saudis are committing economic suicide to hurt Iran.

At first they pumped more into the market on the behest of the US to hurt Russian mono economy which is by and large dependent on crude exports to Europe.

I don't see the Saudis cutting now given the tensions with Tehran.

The only advantage the Saudis have is their huge external reserves which they are drawing from to offset lower earnings from oil sales.

In 3mths time I expect crude prices to fall well below the $20 mark.

Adminisher:


Saudi Arabia has invested wisely in petrochemicals. That is their real joker. They are leading the world now in the production of ten key petrochemical products. The petrochemicals business thrives on low oil prices. When you look at things you will hate Nigeria and a President like Goodluck who could not build refineries not to talk of petrochemicals. Every unemployed young person or out of job worker should know now who to blame. Nigeria was making 2 million x $124 × 365 X 0.8 dollars per year in 2012/2013, where is all the money