Russia and Saudi Arabia held another and unusual phone call this week to discuss the OPEC + deal, after officials from the group on Friday warned of the potential for a weaker oil market in 2021.
President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed Bin Salman spoke on Saturday in what the Kremlin said was a continuation of a conversation on October 13. The two discussed the OPEC + cooperation “in detail”, the Kremlin said in an email statement.
“Both sides reiterated their readiness for further close coordination in this area in order to maintain stability in the world energy market,” the Kremlin said.
The latest call came two days before several OPEC + ministers are ready to discuss the implementation of production cuts during a meeting of the so-called Joint Ministerial Monitoring Committee. The steering group meets monthly to analyze the market with their recommendation later reviewed by the entire group. The next full OPEC + ministerial meeting is scheduled for 30 November and 1 December.
Brent crude oil has been traded roughly between $ 40 and $ 45 per barrel. Barrel since July, limited by the impact of the coronavirus outbreak on global energy needs and supported by the OPEC + production cut. The group includes members of the Organization of the 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 brokered a ceasefire between the two and also participated in some of the calls.
This week’s intensive oil diplomacy comes as Coronavirus cases are rising in Europe and America, weighing on demand expectations over the next few months. Oil traders are now questioning whether the market would be able to absorb the planned OPEC + production increase of almost 2 million barrels per day in January.
“If OPEC continues and adds production as planned in January, we will no longer draw raw stocks,” said Torbjorn Tornqvist, co-founder of the large oil trading house Gunvor Group. “I suppose the market is now pricing the likelihood of them postponing the increase in production.”
Earlier this week, Russian Energy Minister Alexander Novak and his counterpart from the United Arab Emirates, Suhail Al Mazrouei, said the group plans to continue with the supply increase as planned. Privately, some OPEC + delegates are discussing whether to postpone the escalation, at least a few months to 2021. A delay of two or three months is a “realistic” option, said an OPEC delegate, asking not to be named as discussions continue is private.
Read more: OPEC + aims to stick to the Output Deal in the midst of virus tension
Other delegates are not so sure they hope the oil market will be stronger in early December. They point to signs such as rapidly declining stocks on board ships outside China or indications that winters in the northern hemisphere may be colder than usual.
Much could change before the group gathers next month. The November 3 US presidential election could reshape US foreign and energy policy; then there is Libya, where oil production is recovering from 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 cooperation to fight the pandemic and the possibility of using Russia Sputnik V vaccine in Saudi Arabia, Kremlin said.
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman is holding his cards close to his chest, warning in September that he will ensure that “anyone who plays in this market will be ouching like hell. ”
OPEC + officials released one confidential outlook on Friday that warned of the potential for the oil market to turn a profit again in 2021 during what they called a negative scenario with lower demand and higher Libyan oil production.
Under such a perception, global oil inventories could increase by 200,000 barrels a day next year, potentially sending oil prices lower. However, this “low scenario”, prepared by the Joint Technical Committee this week, is not the group’s central expectation. 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.
– With the help of Dina Khrennikova and Olga Tanas
(Adds quote from statements in third paragraph.)