Saudi-Russian discord clouds OPEC+ talks

Vienna, June 2: Signs of discord between top crude oil producers Saudi Arabia and Russia are set to overshadow an OPEC+ output policy meeting on Sunday that will test their alliance.                 

The in-person ministerial meeting of the 13 OPEC members led by Riyadh and their 10 allies headed by Moscow will be the second at the OPEC headquarters in the Austrian capital since March 2020.                 

Adding to the apparent tensions, OPEC did not invite journalists from three major financial news outlets — Bloomberg, Reuters and The Wall Street Journal — to cover the talks, according to Bloomberg.                 

An OPEC spokesman declined to comment.                 

Oil producers are grappling with falling prices and high market volatility amid the Russian invasion of Ukraine, which has upended economies worldwide.                 

In April, countries were caught off guard when several OPEC+ members agreed to voluntarily cut production by more than one million barrels per day (bpd), which briefly buttressed prices but failed to bring about lasting recovery.                 

Analysts are now divided over whether Saudi Arabia and Russia will keep the group on course with its current output policy, or further curtail production in a bid to prop up prices.                 

“The recent inconsistent rhetoric from the two heavyweights certainly threw the spanner in the works and it is hard to predict the outcome,” said Tamas Varga of PVM Energy.                 

Oil prices have plummeted by about 10 percent since the April cuts were announced, with Brent crude falling close to $70 a barrel, a level it has not traded below since December 2021.                 

Traders worry that demand will slump, with concerns about the health of the global economy as the United States battles inflation with higher interest rates and China’s post-Covid rebound stutters.                 

Last week, Saudi Energy Minister Prince Abdulaziz bin Salman fuelled speculation of new cuts by warning traders against betting on falling oil prices.                 

“I keep advising them that they will be ouching — they did ouch in April. I would just tell them: watch out,” he said.                 

However, Russia’s Deputy Prime Minister Alexander Novak appeared to disagree with that assessment, ruling out additional production adjustments in an interview with Russian newspaper Izvestia.                 

“I don’t think that there will be any new steps, because just a month ago certain decisions… were made by some countries due to the fact that we saw a slow pace of global economic recovery,” Novak said.                 

Stephen Innes, analyst at SPI Asset Management, said “mixed messages are the first signs of discord within the group”.                 

In addition to the contradictory signals, Moscow has fallen short on its pledge in February to cut output by 500,000 bpd.                 

With its war in Ukraine dragging on and Western sanctions hitting its economy, Russia has been shipping its oil to India and China as the Asian giants soak up the cheap crude.                 

Sunday’s meeting might not be as quick as previous ones, said Edward Moya, analyst at trading platform OANDA.                 

“The Saudis will probably argue for more production cuts, while Russia is getting desperate for oil revenue,” he told AFP.                 

“The bromance between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman is probably over,” Moya said.   
It is not the first spat between the oil giants.                 

The alliance was pushed to the brink of collapse in March 2020 when Moscow refused to cut its oil production even as the Covid pandemic sent prices into freefall.                 

After negotiations broke down, Riyadh flooded the market by boosting its oil exports to record levels, pushing crude prices below $50 per barrel.                 

The plunge, which would take eight months to recover, eventually forced both Russia and Saudi Arabia to reach an agreement to stabilise prices.                 

This time around, “any Russian veto could materially reduce OPEC’s power of hit on oil prices,” Ipek Ozkardeskaya, analyst at Swissquote Bank, said in a research note.                 

However, she added, there is “little chance that we see the kind of discord like back in 2020” as the war in Ukraine has strengthened their ties.