Under pressure from Trump, OPEC embraces Putin

When Vladimir Putin announced at the weekend that OPEC would extend oil production cuts, broadcasting an agreement before the group had met to approve it, angered several member states.

They were shocked in the non-OPEC leadership role Russia, seen as an enemy in the oil markets, was playing in shaping the group’s policies.

But the reality was quickly settled and the admission that Moscow could help OPEC in its goal of supporting oil prices at a time of intensification of heat in another front: from US President Donald Trump.

Trump is putting unprecedented pressure on OPEC and its de facto leader Saudi Arabia, demanding that they pump more raw to lower fuel prices – a key domestic issue for it as it requires re-election next year.

Iranian oil minister Bijan Zanganeh initially expressed anger over Russian President Putin’s prior notice of declining production.

“OPEC will die with these processes,” he said Monday morning, before OPEC oil ministers met to sign an agreement effectively, denying Russia and Saudi domination in the group’s affairs.

But on Monday evening, he had backed his support for the deal: “The meeting was good for Iran and we got what we wanted.”

OPEC and Russia have become the least likely bedfellows, creating an “OPEC +” alliance to reduce the global crude supply to fight high production by the United States and a weak world economy.

This is a marriage of convenience as both want higher oil prices to support their finances, while the alliance may also strengthen OPEC’s position in the face of Trump’s demands.

“I do not think Russia is calling the shots,” Saudi Energy Minister Khalid al-Falih said when asked whether Putin was now the OPEC chief. “I think Russia’s influence is welcome.”

Iran’s OPEC Governor Hossein Kazempour Ardebili agreed, echoing Zanganeh’s conciliatory tone of his boss.

“Russia is a great player. If you announced something in agreement with the rest of OPEC, this is more welcome,” he said. “We are working together.”

Iraq, which has surpassed Iran as the second largest OPEC producer after Saudi Arabia and has received its market share in Europe and Asia, also said Moscow’s growing role was positive.

Such an approval corps is a sharp change for relations between OPEC and Russia that have been characterized by antipathy and distrust for decades.

Back in 2001, Russia agreed to cut production together with OPEC, but never made its promises and instead yielded the result. This heavily damaged relationship and other collaborative efforts were not successful – until the last alliance.

In his book “From the Desert”, former Saudi Arab Minister Ali al Naimi wrote that his 2014 meeting with Russian officials lasted only a few minutes. By learning Russia would not reduce production, he collected his papers and said, “I think the meeting is over.”

CHANGING DYNAMICS

Putin announced on Saturday that he had met Saudi Crown Prince Mohammed bin Salman on the sidelines of a G20 meeting in Osaka and they had agreed to extend the OPEC+ production cuts.

Gary Ross, chief executive of Black Gold Investors, said that even if it was “indelicate” for Saudi Arabia to let Putin announce the deal, it showed the changing oil market dynamics.

“Trump has one interest – low oil prices. Putin wants higher prices,” said Ross, a veteran OPEC watcher. “Putin is vitally important for OPEC. And it is still in Russia’s best interest to cooperate with OPEC as half its budget comes from energy revenues.”

Russia needs prices of $45-50 a barrel to balance its budget and its finances are stretched by U.S. sanctions imposed following its annexation of Crimea. Saudi Arabia needs an even higher price of $80. Benchmark Brent crude is currently in the region of $65 a barrel.

But just as the collaboration could lend Saudi Arabia some support against Trump, who has demanded Riyadh increase oil supply if it wants U.S. military support in its standoff with regional rival Iran, it also gives Putin more than extra revenues.

Good relations with Riyadh, an American ally, bolsters Moscow’s clout in the Middle East, helps Putin’s campaign in Syria and might even help mend relations with Washington, according to two sources in Russia’s delegation to Vienna, where OPEC officials have been meeting.

Highlighting those intersecting roles, Russian Energy Minister Alexander Novak also serves as head of several Russian government commissions on trade and cooperation including with Saudi Arabia, Iran, Turkey and Qatar.

Iran’s change in tone, in particular, illustrates the conflicting political and economic pressures it faces.

Tehran’s falling production, due to U.S. sanctions reimposed and extended by Trump, has reduced its role within OPEC while increasing those of Saudi Arabia and non-OPEC Russia.

Iran’s exports plummeted to 0.3 million barrels per day in June from as much as 2.5 million bpd in April 2018. Oil output in OPEC’s exempt nations.

But Iran is itself also looking to help from Russia, one of just a few countries that has offered to aid Tehran to counter the sanctions choking its oil trade and hammering its economy.

Two Russian energy industry sources said some work was being done to boost the Iranian economy but talks were slow and difficult, without giving details of the nature of the plans./Investing.com

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