Saudis Walk Away From Russia as Oil Talks Fall Apart
Saudi Arabia is walking away from upcoming talks with non-OPEC members, including Russia, amid disagreements on how to share the burden of oil production cuts.
Russia is the world’s largest producer of crude oil, currently pumping around 11 million barrels per day (bpd), a post-Soviet high. Saudi Arabia is the world’s largest crude oil exporter and its second largest crude oil producer. In July, the kingdom pumped a record high 10.67 million bpd.
OPEC officials were scheduled to meet with non-members including Russia on Monday before an OPEC ministerial meeting in Vienna on Wednesday. The meeting was later canceled entirely after the Saudis decided to not participate, according to a Bloomberg report on Friday.
Two delegates said that OPEC is regrouping and has called another internal meeting to try to resolve its own differences, particularly participation by the cartel’s second and third largest producers, Iraq and Iran.
Both Iraq and Iran have inched closer recently to agreement on an oil production cut. One delegate said Saudi Arabia wants an OPEC deal in place before conversations with other producers such as Russia.
However, bringing Iraq and Iran on-board will not be an easy task for the Saudis. Iraq, for its part, has stated that it needs oil revenue to continue its battle against ISIS. Moreover, last month Baghdad encouraged international oil companies operating in the country to actually ramp up oil production next year – a position diametrically opposed to any kind of oil cut agreement.
Baghdad also claims that it lost valuable oil market share to other OPEC members when the country was placed under international sanctions during the presidency of Saddam Hussein.
Former international sanctions could also cause Iran to balk at any OPEC oil production cut plans. The country emerged last year from several years of Western sanctions placed against its energy sector over Tehran’s nuclear ambitions. Iran, currently pumping 3.92 million barrels per day (bpd), is still about 800,000 bpd shy of its pre-sanctions goal of 4 million bpd.
If either Iran or Iraq balk at oil production talks next week, it could place the burden on Saudi Arabia to make up the difference. However, it’s not clear if the Saudis would be willing to pick up the slack or would simply walk away from oil production talks.
Oil futures prices fell on Friday on the Saudi disclosure, with traders adopting a wait-and-see stance ahead of next week’s OPEC meeting. Global benchmark, London-traded Brent fell $1.92, or 3.9%, to $47.08 a barrel. U.S.-benchmark West Texas Intermediate (WTI) crude prices also dropped for the session, down $2.02, or 4.2%, at $45.93 a barrel. Friday’s oil price downturn was the biggest percentage loss in two months.