While most of the world was concentrating on the football last night, with Saudi Arabia and Russia opening the 2018 world cup tournament, the two countries were also meeting for another important reason. Alongside the sports, President of Russia, Vladimir Putin, met with Saudi Arabian Crown Prince, Mohammad Bin Salman, for talks aimed at boosting oil production along with maintaining their alliance.
As two of the largest exporters of oil globally, the two leaders were in talks aimed at adapting their deal to control oil in production, in light of the growing risks from new US sanctions on Iran and the demise of the Venezuelan oil industry, both of which threaten to send oil prices sharply higher.
Plans For OPEC+ Group
Ahead of the talks, both Saudi Arabia and Russia had floated proposals for an OPEC+ group, which would bring an extra million barrels a day of crude onto the market, though Saudi Arabia reportedly prefers a smaller increase. While the two oil producing nations have been working closely with one another over recent years, key differences remain, though these talks held last night are a strong indication of the willingness of both parties in fostering a continued relationship.
Saudi Arabia and Russia first forged an alliance during the course of face-to-face meetings held in 2016 between Putin and Mohammad Bin Salman. The meetings fostered the environment for Russia to cooperate with OPEC and slash its oil production for the first time in over a decade with the 24 oil producing nations jointly cutting production by around 1.8 million barrels per day.
Since the agreement in 2016, oil prices have rallied from lows of $25 to just over the $70 mark where they have currently stalled. The World Cup talks come just ahead of the next key OPEC meeting due to be held in Vienna next week, where it is highly anticipated that the oil cartel will agree to increase production in a bid to curb surging prices.
Trump Lashes Out At OPEC
The meeting and recent movements in Oil have caught the attention of President Trump who has used his twitter account to lash out at OPEC, marking the second such attack in as many months. Trump’s most recent tweet said “Oil prices are too high, OPEC is at it again. Not good!”. The President has been criticised for allegedly trying to bully the oil cartel into raising oil production, in a bid to curb oil prices.
However, critics have highlighted that the President has so far refrained from levelling any blame at Moscow for their part in driving oil prices up. Similarly, the President has absolved himself of any blame for the part his recent policies have played in pushing oil up.
Trump’s Policies Pushing Oil Prices Higher
Last month the President announced that he would be taking the US out of the Iran nuclear pact and imposing fresh, “powerful” sanctions on the state. These sanctions will likely see hundreds of thousands of barrels of Iranian oil taken off the market with oil spiking in response to the news.
Similarly, sanctions imposed on Venezuela will add further pressure to the already crumbling Oil industry, which has crippled the nations economy. The IEA this week said that combined output from both Iran and Venezuela is due to fall a further 30% next year due to US sanctions, adding further upward pressure on prices.
OPEC Meeting in Focus
All focus now rests on the upcoming OPEC meeting due next week where expectations are for an “inevitable” increase in output, according to Saudi Arabian oil minister Khlaid Al-Falih, who was speaking with Bloomberg ahead of the World Cup talks between the two nations. Al-Falih added that he feels the group will reach a “reasonable and moderate agreement” but nothing “outlandish”.
It seems that despite Russia trouncing Saudi Arabia 5-0 in the football, the two sides are keen to work together. Of the talks between the two, Mohammad Bin Salman said; “without a doubt we would like to continue this co-operation and move forward”.
Oil prices rallied up to just shy of the retest of the 2011 low around $74 before retracing lower. Prices are now battling it out to get back above the 2010 low of $67 which is providing resistance for now. Below here the next key support level will be a retest of the $55 level 2016 high with the bullish trend line from 2016 lows coming in around the same level.