Deal heralds new era for oil markets

JEDDAH: In a move that will herald a new era for oil markets, Saudi Arabia and Russia have signed an agreement to set up a task force to review oil market fundamentals and recommend measures and actions that would secure market stability.

The announcement of the bilateral deal came on the sidelines of the G20 summit in the eastern Chinese city of Hangzhou as Minister of Energy, Industry and Mineral Resources Khalid Al-Falih and his Russian counterpart Alexander Novak agreed to “act together” to steady the market.
Deputy Crown Prince Mohammed bin Salman told Russian President Vladimir Putin on Sunday that cooperation between the two countries would bring benefit to the global oil market.
Novak said the two countries were moving toward a strategic energy partnership and a high level of trust would allow them to address global challenges.
Together, Russia and Saudi Arabia account for a quarter of the world’s oil production, including natural gas liquids.
Commenting on the deal, Tamer El Zayat, senior economist at the National Commercial Bank, said: “Saudi Arabia’s partnership with Russia can herald a new era for oil markets, especially that it involves the world's two largest oil exporters. Even though the freeze hype was exaggerated after the bilateral talks, future cooperation will surely be supportive of oil prices via supply coordination.”
John Sfakianakis, director of Economics Research at the Gulf Research Center, said: “Saudi Arabia plays a leadership role in the oil market and it catalyzes others to join in but it cannot alone shoulder the responsibility to cut production. Upon Saudi Arabia's pledge with Russia, several OPEC countries voiced their support for cooperation.”
He said: “Supply and demand will come more or less into balance this year. Saudi Arabia's coordinated, appropriate, collective decision on production would help bring that balance.”
Basil Al-Ghalayini, CEO of BMG Financial Group, told Arab News: “This is a historic agreement where the largest oil producer within OPEC teams up with the largest oil producer outside OPEC. It is too early to make any predictions on the impact of such an agreement but it might serve as OPEC 2, especially if the two countries apply a high frequency of meetings.”
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said: “It is clearly in both countries' interests to limit production and thereby boost prices. For an agreement to work, implementation and monitoring will be key.”
Bessma Momani, senior fellow at the Centre for International Governance and Innovation, said: “This agreement will likely coordinate oil output in an effort to regulate prices. Both Russia and Saudi Arabia would benefit from higher prices. Saudi Arabia is the largest oil producer and price maker and an agreement with Russia on output levels will enhance Saudi positioning.”
Earlier Putin paid fulsome compliments to the deputy crown prince. “Prince Mohammed bin Salman is a very reliable partner with whom you can reach agreements, and can be certain that those agreements will be honored,” Putin said.
Crude oil futures touched a one-week high before paring gains on Monday after the agreement.
Brent crude futures for November delivery were up 57 cents per barrel at $47.40 a barrel at 1735 GMT. They earlier hit a session high of $49.40, a peak since Aug. 30, in anticipation of the Russia-Saudi deal.

US crude for October delivery was up 73 cents at $45.17 a barrel, after reaching a high of $46.53 a barrel earlier.
Prior to the 1990s, trade between Russia and the Kingdom was virtually non-existent. Russia’s exports to Saudi Arabia in 1997 were valued at SR419 million ($112 million), which made it the 34th largest exporter to the Kingdom.
In 2015, the Saudi-Russian bilateral trade volume decreased by 44 percent and reached $1.09 billion compared to $1.94 billion in 2014.