Russia and Saudi Arabia agreed to extend into 2019 their deal to manage the oil market, known as OPEC+, although Moscow and Riyadh have yet to confirm any fresh output cuts.
Russian President Vladimir Putin announced the extension after a meeting Saturday on the sidelines of the Group of 20 with Saudi Arabian Crown Prince Mohammed bin Salman. The comments open the door for a deal at the OPEC meeting next week in Vienna. OPEC delegates said the leaders have given their political blessing for an agreement, but plenty of work is left, including on the size of any potential output cut.
“There is no final decision on volumes, but together with Saudi Arabia we will do it,” Putin told reporters about extending the agreement in Buenos Aires. “And whatever number there will be based on this joint decision, we agreed that we will monitor the market situation and react to it quickly.”
On Sunday, OPEC’s president, U.A.E. Energy Minister Suhail Al Mazrouei, said he was optimistic OPEC+ will reach an agreement over a cut in production for 2019 when they meet in Vienna next week. Technical teams are working on the level of the cuts necessary and the reference baseline for the reduction, he said.
“I am optimistic that we will reach a good solution and a good agreement to adjust production downward, to cut production, to ensure that we keep the market stability and keep the OPEC and non-OPEC together as well,” Al Mazrouei said on his arrival in the Austrian capital.
Saudi Arabia said through its state-owned press agency that Riyadh and Moscow had held talks in Buenos Aires about “rebalancing” the oil market. While both talked about progress and extension of the cooperation, neither the Russians nor Saudis made any formal declaration about output volumes.
“This might be the critical breakthrough for OPEC and non-OPEC to cut,” said Derek Brower, a director at consultant RS Energy Group. “But the details are now what matter — how much will be cut, from when, for how long and, crucially, from what baselines.”
The unity Putin and the Saudi crown prince showed at the G-20 meeting amid all the controversies shifted the momentum in favor of a new agreement, said Ildar Davletshin, an oil and gas analyst at Wood & Co. Financial Services AS.
“Their personal ties strengthened the probability of a new output-cut deal,” he said. “Russia now will most likely agree to a cut of 200,000+ barrels per day from a relatively recent baseline, probably levels reached in the last couple of months.” It’s unclear, though, how fast Russian producers may be willing to deliver the cuts, he added.
Earlier this week, an advisory group to OPEC told ministers the market is oversupplied, with a need to cut about 1.3 million barrels a day from October levels. The advisory group’s proposals aren’t binding, and OPEC ministers often choose a different path. Yet the view that the oil market is oversupplied is a signal the cartel is laying the groundwork for action.
OPEC, which pumps four-in-10 barrels produced worldwide, will convene in Vienna on Dec. 6 to discuss output cuts after oil prices in November suffered the largest monthly drop since the global financial crisis in 2008.
Brent crude, the global benchmark, is down about a third from an October high due to rising supply from the U.S. shale regions, Saudi Arabia and Russia, slower demand growth and American waivers on oil sanctions on Iran. Brent hit a a four-year high of $86.76 a barrel in early October before slumping to $58.71 on Friday. Oil trading has been volatile over the last week as traders took positions ahead of the OPEC gathering.
“Markets think there will be some sort of a cut,” said Mike Wittner, head of oil market research at Societe Generale SA. “However, there’s concern that the cuts will not be big enough and also that the message may be intentionally unclear, in order not to get President Trump upset.”
In public and private, Trump has told the Saudis he wants cheaper crude, even disclosing that he berated the crown prince in an October phone call when international benchmark Brent surged above $80. Prior to the collapse in oil prices, the kingdom was responsive to Trump’s demands. Its November production surged to an all-time record above 11 million barrels a day as prices swooned, prompting a jubilant response on Twitter from the White House.
France’s President Emmanuel Macron, who has faced intense protests against growing gasoline prices in his country, also called for cheaper oil at the G-20 summit.
For Prince Mohammed, the kingdom’s day-to-day ruler, the dilemma between keeping the U.S. president happy and having an oil price that balances the Saudi budget has been sharpened by the murder of journalist Jamal Khashoggi. Despite pressure from angry senators and other Washington power players, the Trump administration has maintained its support for the Saudi leader.
Read: U.S. output surge adds to pressure on OPEC+
Putin and the prince ended years of animosity between the world’s two largest oil exporters in 2016 and have worked together since then in a deal known as the OPEC+ group, that includes the cartel plus non-OPEC members such as Russia, Mexico, Azerbaijan and Kazakhstan.