Saudi Arabia and Russia sign oil-co-operation deal

The oil co-operation agreement stops short of pledging the production limits some countries have called for.

Khalid al-Falih, the chairman of Saudi state oil giant Aramco. Picture: AFP Photo/Fayez Nureldine.

Three weeks before a highly anticipated summit of oil producers this month, Saudi Arabia and Russia signed an oil co-operation agreement but stopped short of pledging the production limits that some countries have called for.

The accord — struck at the Group of 20 summit of economic powers in China on Monday — was a powerful symbol of the pressure bearing down on the world’s two largest oil producers as they grapple with fallen petroleum prices and face calls at home and abroad for direct action to prop up the market. Both countries are highly dependent on oil revenue, and Russian President Vladimir Putin indicated last week that a so-called output “freeze” by big producers was a good idea.

But without firm commitments, oil traders and oil officials elsewhere were sceptical Monday’s pact would mean much. Saudi Arabia and Russia struck a similar agreement earlier this year, but it fell apart in April in Qatar when the Saudis suddenly insisted that Iran take part.

Oil prices rose sharply on Monday morning, by over 5 per cent at one point, on speculation about what the Saudi-Russiaoil agreement would say, but those gains almost disappeared after Messrs. Falih and Novak spoke.

Saudi Arabia and Russia are set to play a key role in informal talks in Algiers beginning Sept. 26 among members of the Organization of the Petroleum Exporting Countries, the 14-nation cartel that controls over a third of globaloil production. Saudi Arabia is the biggest oil producer in OPEC and Russia the largest outside the group.

The Algiers discussions are expected to revive the idea of the output freeze, setting limits on what countries can produce and theoretically helping reduce a global glut of oil that has weighed on prices.

After a joint news conference Monday, Messrs. Novak and Falih sent conflicting signals on a future freeze deal.

Mr Novak told Russian news agency that an agreement being discussed would freeze oil output for up to six months at levels seen in July, August or September. He also said an exemption should be made for Iran, an OPEC member boosting oil production now that Western sanctions over its nuclear program have been lifted.

Mr Falih said only that Iran — Saudi Arabia’s archrival in the Middle East — should play a “constructive role” in freeze talks. He also said that a production freeze wasn’t necessary right now.

It is “one of the favorables option but not necessary today,” Mr Falih said in an interview with Al Arabiya.

An Iranian official said Monday that the country still planned to reach its output targets, regardless of the Saudi-Russia agreement.

The issue of Saudi and Russian production has been a sensitive one among big producers. Both are pumping at historically high levels, a departure from past price slumps when Saudi Arabia generally tried to boost prices by cutting output. This time, Saudi Arabia has reckoned that higher production in the US would make production cuts less effective.

Calls for production cuts have grown louder in OPEC member countries like Nigeria and Venezuela, where economic pain is causing civil unrest.

Saudi Arabia and Russia didn’t mention production cuts or ceilings in their memorandum of understanding on Monday. The countries said they would co-operate by forming a working group to monitor the market and having regular meetings.

The agreement was endorsed by oil ministers from the Persian Gulf, which are generally aligned with Saudi Arabia. “This dialogue confirms that the main oil producers are watching the oil market. to help achieve stability,” Kuwait’s acting oil minister Anas al-Saleh said in a statement on the state news agency KUNA.

Privately some OPEC delegates were sceptical. “If Saudi Arabia is not committed to a freeze, who is going to freeze? What is the point of meeting in Algiers?,” said one OPEC delegate from a region outside the Persian Gulf.

The announcement came amid a flurry of diplomatic activity around the idea of curbing output.

Mohammad Barkindo, the secretary-general of OPEC, visited Qatar’s Prime Minister Sheikh Abdullah Bin Khalifa Al-Thani, whose country is a member of the cartel. He is also scheduled to meet officials with OPEC member Algeria on Monday before travelling to Tehran for talks with Iran’s oil minister Bijan Zanganeh.

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