(Bloomberg) – Russia and Saudi Arabia made a second and unusual call this week to discuss the OPEC + treaty after group officials warned on Friday of the potential for a weaker oil market in 2021.
President Vladimir Putin and Saudi Arabian Crown Prince Mohammed Bin Salman spoke on Saturday in a continuation of the October 13 talks, the Kremlin said. The two discussed the OPEC + cooperation “in depth,” the Kremlin said in a statement it emailed.
“Both sides reaffirmed their readiness for further close coordination in this area in order to maintain stability in the world energy market,” said the Kremlin.
The last request came two days before several OPEC + ministers were to discuss the implementation of production cuts at a meeting of the so-called Joint Ministerial Monitoring Committee. The steering group meets monthly to analyze the market and its recommendation is later reviewed by the whole group. The next full OPEC + ministerial meeting is scheduled for November 30th and December 1st.
Brent crude has been trading for the most part between $ 40 and $ 45 a barrel since July, limited by the impact of the coronavirus outbreak on global energy demand and aided by the OPEC + production cut. The group includes members of the Organization of Petroleum Exporting Countries led by Saudi Arabia and several independent countries including Russia and Kazakhstan.
Putin and Saudi leaders have not spoken twice in the same week since April, when Moscow and Riyadh tried to reach an agreement to end a devastating oil price war. US President Donald Trump eventually signed a truce between the two and also joined some of the calls.
This week’s intense oil diplomacy is due to the rise in coronavirus cases in Europe and America, weighing on prospects for demand over the next few months. Oil traders are now wondering whether the market can absorb OPEC +’s planned production increase of nearly 2 million barrels a day in January.
“If OPEC adds production as planned in January, we will run out of crude oil supplies,” said Torbjorn Tornqvist, co-founder of the large oil trading house Gunvor Group. “I suspect the market is now setting the likelihood that they will postpone the rise in production.”
Earlier this week, Russian Energy Minister Alexander Novak and his UAE counterpart Suhail Al Mazrouei said the group plans to continue the supply boost as planned for the time being. Some OPEC + delegates are privately discussing whether the rejuvenation should be postponed by at least a few months to 2021. A delay of two or three months is a “realistic” possibility, said an OPEC delegate and asked not to be named as the discussions are still ongoing.
Other delegates aren’t so sure, hoping the oil market will pick up in early December. They point to signs of rapidly falling stocks on board ships offshore China, or to signs that winter in the northern hemisphere may be colder than normal.
Much could change before the group meets next month. The US presidential election on November 3rd could reshape American foreign and energy policy. Then there is Libya, where oil production is recovering after a ceasefire between warring factions. Finally, the course of the pandemic and the potential for a vaccine or treatment.
Putin and the Crown Prince also discussed working together to fight the pandemic and the possibility of using Russia’s Sputnik V vaccine in Saudi Arabia, the Kremlin said.
Saudi Energy Minister Prince Abdulaziz bin Salman has his cards tight to his chest after warning in September that he will make sure “everyone who plays in this market gets ouch as hell”.
OPEC + officials released a confidential outlook on Friday, warning of the potential for the oil market to turn into surplus again in 2021, citing what they described as a negative scenario of lower demand and higher Libyan oil production.
With that in mind, global oil stocks could rise by 200,000 barrels a day over the next year, potentially leading to lower oil prices. However, this “low scenario” prepared by the Joint Technical Committee this week is not the main expectation of the group. It is based on the assumption of a “stronger and longer-lasting second wave of Covid-19” in the fourth quarter of 2020 and the first quarter of 2021.
(Adds a quote from the statement in the third paragraph.)
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