Do Saudi Arabia And Russia Really Want Higher Oil Prices?
The jawboning of oil prices by the Saudi Arabian/Russian tag team should be wearing off after more than a year of actions that don’t measure up to the words. Oil prices slumped recently, dropping from around $54 per barrel to just below $50 as of Friday’s close.
As if on cue, the Russian energy minister announced Friday that Russia has now met its target of reducing oil production by 300,000 barrels per day. It took four months to do something that should have taken just weeks. (The agreement came into force on January 1.) And, of course, we’ll have to see if the Russians have actually done what they say they’ve done.
Only a week earlier, the Saudi energy minister indicated that there is momentum growing in OPEC for extending production cuts beyond June for another six months. This announcement comes only six weeks after the same minister said that OPEC would NOT be considering extending the cuts. This is reminiscent of last year’s run-up to the production agreement in which Russia and Saudi Arabia kept alternating in making often contradictory announcements to sow confusion about the possibility of a production agreement and keep markets on edge without actually having to do anything.
I continue to question the sincerity of Saudi Arabia and Russia who I believe remain committed to undermining the production of tight oil (shale oil) in the United States. Despite the cuts agreed to for this year through June, the March numbers suggest substantial non-compliance among non-OPEC signers of the production agreement and a reminder that major producers Libya, Nigeria and Iran have been exempted from cuts. Do Saudi Arabia and Russia really want prices to rise enough to make tight oil profitable all across the United States (and not just sweet spots in the Permian Basin)? I’m not convinced. Related: Saudis To Boost Oil Export Capacity To 15 Million Bpd In 2018
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