Saudi Arabia and Russia, 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 on Monday.
The energy ministers of both countries have been at pains to stress a common view on the crude market, saying Friday they’ll continue to cooperate 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.
Russia Holds Out
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 than its Gulf ally. 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 Monday 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 U.S.-China trade war fuels concern that demand will ebb.
“There’s no doubt that the current situation on the global oil markets, which has begun to show volatility once again, makes Saudi-Russian cooperation more important,” Al-Falih said Monday.
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. President Vladimir Putin has shown he’s reluctant to walk away from the agreement, which also ensures his political partnership with Saudi Arabia as economic ties tighten.
State oil giant Saudi Aramco is looking at “multiple” projects in Russia, Al-Falih told Tass. They include the Arctic LNG 2 gas project — in which Aramco is still willing to buy a stake — and others with Gazprom PJSC and Rosneft PJSC, he said. Saudi Arabia also may be interested in taking a stake in Russian petrochemical producer Sibur Holding, he said.
Novak also commented Monday on potential cooperation with Saudi Arabia over Sibur, saying the Russian company may build a plant in the Gulf kingdom.