OPEC’s top oil-producing nation Saudi Arabia and Russia negotiated a deal in private in September to raise the oil output. The move comes amid calls from the U.S. President Trump urging Saudi Arabia to do more amid higher prices. Further gains are expected as supply is seen to be stretched ahead of the U.S. sanctions on Iran which will curb its oil exports as well.
The deal was reported to have been struck ahead of the Algiers meeting which also included other OPEC nations. President Trump had maintained pressure on OPEC for the high oil prices. He called out the oil-producing countries to boost output to bring down fuel prices.
The move is aimed at lowering oil prices ahead of the congressional elections due in November.
Reports of the deal showed the increasing cooperation between Russia and Saudi Arabia in deciding the output on oil prices at a bilateral level. It also cast a shadow on the importance of the other OPEC members who were excluded.
Saudi’s energy minister, Khalid al-Falih and Alexander Novak, his Russian counterpart had agreed during a meeting between the two nations to lift output from September through December.
Crude oil prices have been steadily rising over $85 for the Brent crude oil which is the international oil benchmark.
Sources close to the deal, according to Reuters said that the two nations had agreed “quietly” to raise production. However, it is said that the move should not be seen as a response to Trump’s demands.
Although not official, the Reuters report said that the Saudi energy minister had informed his U.S. counterpart about the deal.
Initially, OPEC members led by Saudi Arabia and non-OPEC member Russia had agreed to raise production by 500,000 barrels per day during the meeting in Algiers at the end of September.
However, the decision to raise production at the OPEC meeting was met with resistance from Iran which is expected to lose it market share due to the U.S. sanctions. Members agreed to defer from making any formal decision until the bi-annual OPEC meeting which is due later this year in December.
Energy market analysts, however, remain skeptical noting that Saudi Arabia is trying to keep prices higher bit also raise production at the same time.
Just a few weeks ago, Saudi officials went on record to note that they preferred oil prices around $80 a barrel.
Since the meeting in Algiers at the end of September, reports surfaced that Riyadh had planned to raise output by 200,000 barrels per day to 300,000 bpd starting from September. This move was aimed to bridge some of the supply gap left due to the sanctions on Iran.
In September, oil output from Russia increased 150,000 barrels per day.
The meeting in Algiers also showed that Iran accused Saudi Arabia and Russia of breaking the OPEC agreement to cut output by deciding to raise production. Iran said that both the nations would be able to make up for the reduction due to Iranian exports.
Energy experts in Russia indicate that oil production from Russia would average around 11.4 million to 11.6 million bpd by the end of 2018. They expect further increases to 11.8 million bpd by 2019.
In September 2018, Russian output was at 11.36 million. This was a slight increase from 11.21 million in August, official data showed. Both Russia and Saudi Arabia said that they could raise production by up to 300,000 barrels per day to plug the shortages due from November.
Although the deal was bilaterally struck, Saudi Arabia is also seen to be keen to maintain unity among its OPEC members. This is expected as Saudi Arabia would need the other nations to buy in as well for future production cuts.