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Saudi Arabia, Russia Agree to New Oil Pact, But No Output Freeze
| Wall Street Journal | - |
Three
weeks before a highly anticipated summit of oil producers this month,
Saudi Arabia and Russia signed an oil-cooperation agreement but stopped
short of pledging the production limits that some countries have called
for.
Saudi Arabia, Russia Agree to New Oil Pact, But No Output Freeze
Saudi Arabia, Russia Agree to New Oil Pact, But No Output Freeze
Output freeze unnecessary right now, said Saudi oil minister
ENLARGE
OPEC’s leading oil
producer Saudi Arabia and Russia have agreed to a new oil pact, though
the accord falls short of placing a cap on their petroleum output.
Photo:
Bloomberg News
The accord—struck at the Group of 20 summit of economic powers in China on Monday—was a powerful symbol of the pressure bearing down on the world’s two largest oil producers as they grapple with fallen petroleum prices and face calls at home and abroad for direct action to prop up the market. Both countries are highly dependent on oil revenue, and Russian President Vladimir Putin indicated last week that a so-called output “freeze” by big producers was a good idea.
But without firm commitments, oil traders and oil officials elsewhere were skeptical Monday’s pact would mean much. Saudi Arabia and Russia struck a similar agreement earlier this year, but it fell apart in April in Qatar when the Saudis suddenly insisted that Iran take part.
Oil prices rose sharply on Monday morning, by over 5% at one point, on speculation about what the Saudi-Russia oil agreement would say, but those gains almost disappeared after Russian oil minister Alexander Novak and Saudi minister of energy Khalid al-Falih spoke.
Saudi Arabia and Russia are set to play a key role in informal talks in Algiers beginning Sept. 26 among members of the Organization of the Petroleum Exporting Countries, the 14-nation cartel that controls over a third of global oil production. Saudi Arabia is the biggest oil producer in OPEC and Russia the largest outside the group.
The Algiers discussions are expected to revive the idea of the output freeze, setting limits on what countries can produce and theoretically helping reduce a global glut of oil that has weighed on prices.
After a joint news conference Monday, Messrs. Novak and Falih sent conflicting signals on a future freeze deal.
Mr. Novak told Russian news agency that an agreement being discussed would freeze oil output for up to six months at levels seen in July, August or September. He also said an exemption should be made for Iran, an OPEC member boosting oil production now that Western sanctions over its nuclear program have been lifted.
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It is “one of the favorables option but not necessary today,” Mr. Falih said in an interview with Al Arabiya.
An Iranian official said Monday that the country still planned to reach its output targets, regardless of the Saudi-Russia agreement.
The issue of Saudi and Russian production has been a sensitive one among big producers. Both are pumping at historically high levels, a departure from past price slumps when Saudi Arabia generally tried to boost prices by cutting output. This time, Saudi Arabia has reckoned that higher production in the U.S. would make production cuts less effective.
Calls for production cuts have grown louder in OPEC member countries like Nigeria and Venezuela, where economic pain is causing civil unrest.
Saudi Arabia and Russia didn’t mention production cuts or ceilings in their memorandum of understanding on Monday. The countries said they would cooperate by forming a working group to monitor the market and having regular meetings.
The agreement was endorsed by oil ministers from the Persian Gulf, which are generally aligned with Saudi Arabia. “This dialogue confirms that the main oil producers are watching the oil market. to help achieve stability,” Kuwait’s acting oil minister Anas al-Saleh said in a statement on the state news agency KUNA.
Privately some OPEC delegates were skeptical. “If Saudi Arabia is not committed to a freeze, who is going to freeze? What is the point of meeting in Algiers?,” said one OPEC delegate from a region outside the Persian Gulf.
The announcement came amid a flurry of diplomatic activity around the idea of curbing output.
Mohammad Barkindo, the secretary-general of OPEC, visited Qatar’s Prime Minister Sheikh Abdullah Bin Khalifa Al-Thani, whose country is a member of the cartel. He is also scheduled to meet officials with OPEC member Algeria on Monday before traveling to Tehran for talks with Iran’s oil minister Bijan Zanganeh.
—Andrey Ostroukh and Olga Razumovskaya contributed to this article.
Write to Ahmed Al Omran at Ahmed.AlOmran@wsj.com, Benoit Faucon at benoit.faucon@wsj.com and Su
