Russian President Vladimir Putin Image Credit: Bloomberg

Russia and Saudi Arabia agreed to extend into 2019 their agreement to manage the oil market — known as Opec+ — although Moscow and Riyadh have yet to agree on any fresh output cuts.

Russian President Vladimir Putin announced the extension after a meeting on Saturday, on the sidelines of the Group of 20, with Saudi Arabian Crown Prince Mohammad 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.”

Simultaneously, 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 Russian 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 G20 meeting amid all the controversies shifted the momentum in favour 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.

Oil concerns

Earlier this week, an advisory group to Opec told ministers the market is oversupplied, with a need to cut about 1.3 million barrels per day (bpd) 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 December 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 US shale regions, Saudi Arabia and Russia, slower demand growth and American waivers on oil sanctions on Iran. Brent hit a 4-year high of $86.76 (Dh318) a barrel in early October before slumping to $58.71 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. Before 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 bpd 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 fuel prices in his country, also called for cheaper oil at the G20 summit.

For Mohammad Bin Salman, the dilemma between keeping the US 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.

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.