Saudis and Russia Hint at Further Action

Saudis and Russia Hint at Further Action
Saudi Arabia and Russia signaled they may be open to further output cuts after the latest OPEC+ deal to curb global oil supplies failed to stem crude's downward spiral.

(Bloomberg) -- Saudi Arabia and Russia signaled they may be open to further output cuts after the latest OPEC+ deal to curb global oil supplies failed to stem crude’s downward spiral.

The two nations will “continue to closely monitor the oil market and are prepared to take further measures jointly with OPEC+ and other producers if these are deemed necessary,” Russian Energy Minister Alexander Novak and his Saudi counterpart Prince Abdulaziz bin Salman said in a joint statement published after a phone call.

Oil has plunged about 20% in New York since the group on Sunday agreed to trim worldwide production by an unprecedented 9.7 million barrels a day, as lockdowns aimed at containing the coronavirus cause the biggest demand slump in history. Prices hit a fresh 18-year low below $19 a barrel on Friday.

The Organization of Petroleum Exporting Countries projected on Thursday that even full implementation of the cuts won’t prevent a surplus in the second quarter, when demand for its crude will fall to the lowest in three decades.

The joint statement on Friday echoes earlier comments by Saudi Arabia’s bin Salman, who has said that his country is ready to cut oil production further if needed when the OPEC+ alliance meets again in June. “Flexibility and pragmatism will enable us to continue do more if we have to,” he said on Sunday.

Russian Pain

The oil-price crash has been particularly painful for Russia. The nation’s coffers will get less than $1 for each exported barrel of oil, according to Bloomberg calculations based on data from the Russian Finance Ministry.

Riyadh signaled on Friday it was making a swift start to implementing its agreed cuts, with an announcement from state-run Saudi Aramco that it would supply customers with 8.5 million barrels a day as of May 1. That’s almost 4 million a day below planned sales in April.

Nonetheless, it’s uncertain whether the kingdom and its partners really have the appetite for further action right now.

The 8.5 million-barrel level represents a kind of floor for Saudi oil production because cutting any further would jeopardize output of associated gas, according to Helima Croft, head of commodity strategy at RBC Capital Markets LLC. Domestic gas demand for power generation has been rising sharply in the kingdom for years.

There’s also the signal Riyadh sent with its latest set of official selling prices, which fine-tune the cost that customers pay in relation to international oil prices. Aramco deepened the discounts for Asian buyers in May, an indication that it seeks to preserve its share of the fastest-growing market even as the production cuts take effect.

It’s questionable too whether the 23-nation OPEC+ coalition, led by the Saudis and Russia, has the appetite for renewed negotiations following this month’s epic bout. Reaching the agreement on April 12 took four days of contentious meetings, which included a walkout by Mexico and intervention by U.S. President Donald Trump.

--With assistance from Olga Tanas, Javier Blas, Matthew Martin and Grant Smith.

To contact the reporter on this story:
Robert Tuttle in Calgary at

To contact the editors responsible for this story:
David Marino at
Amanda Jordan, Rakteem Katakey


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Rudolf Huber  |  April 20, 2020
Further action? What is this going to be then? 10 MMbbl/d less for summer? Double the cuts? Make sure that the paper deal actually delivers all the punch it should have and force everyone to live up to its promises? Or will the Saudis refrain from swamping the market with cheap oil before the deal goes into effect? Come on - those hints are not worth a turd. The market is in panic.
Mads Andersen  |  April 20, 2020
Double up on current reduction to 25 to 30 million barrels per day for the rest of 2020.. That will have huge impact on inventory there by pushing prices upwards.. All producing countries must commit to production cuts.. No free rides..