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September 5, 2016 No.
6600

At The G-20 Russia And Saudi Arabia Agree To Limit Oil Production

On the sidelines of the G-20 summit in China, Russia and Saudi Arabia agreed to maintain stability on the crude oil market. The Saudi Minister of Energy, Industry and Mineral Resources Khalid Al-Falih and Russian Minister of Energy Alexander Novak stressed in the joint statement that "the current challenges in the supply side of the global oil market, including major contraction of capital investments in oil extraction on a global scale, particularly in exploration, as well as mass deferrals of investment projects," made the market, as a whole, "more volatile and therefore unsustainable to both producers and consumers in the long term". In the statement, the ministers underlined that "close cooperation among major oil producing countries is crucial to oil market stability to ensure sustainable levels of investment for the long term."[1]

Russian minister Novak stated that this agreement is opening "a new era" of Russian-Saudi cooperation. Novak added: "I am confident that this new stage of relations between the two countries, OPEC and non-members. This is a historic moment, in my opinion."[2]

Concerning Saudi Arabia and oil freeze, the Saudi regime needs oil at a higher price than currently is, so that Aramco could be valued at $2-3 trillion by the time they float the IPO (Initial Public Offering) that could offer investors 5% of Aramco. Reuters cited an oil industry source who claimed that the Saudis "want higher oil prices for a better Aramco valuation".[3] After the agreement between Russia and Saudi Arabia, global crude prices surged. Brent crude prices recorded a 5% spike but then fell back to a 1.6% gain.[4]

Novak and his Saudi counterpart agreed to hold an October meeting in Moscow to discuss cooperation in the oil and gas sector. Meanwhile, on September 26-28, Algiers will host the International Energy Forum. Venezuela, Ecuador and Kuwait have initiated a new round of talks on capping oil production to be held at the forum. Meanwhile, Venezuelan oil minister Eulogio del Pino, whose country's severe economic crisis has been exacerbated by plummeting oil prices, praised the agreement reached by Russia and Saudi Arabia to stabilize the prices of crude oil. "Besides, this initiative falls in line with the strategy that Venezuela has been working on at [Venezuelan] President Nicolas Maduro's instruction in recent months in order to seal agreements between the largest producers of crude," said the Venezuelan minister.[5]

On September 4, Russian president Vladimir Putin met with the deputy Crown Prince of Saudi Arabia Mohammad Bin Salman Al Sa'ud, the son of the current Saudi king and the country's defense minister, on the sidelines of the G-20. The two leaders, who are supporting the opposing sides in Syria, paid compliments to each other. 

Putin stressed that Russia believes that "without Saudi Arabia no serious issue in the region can be resolved," adding that it is important that two parts maintain a regular dialogue. Bin Salman also stressed the importance of Russia-Saudi relations. The Crown Prince said: "For us, the relations between Russia and Saudi Arabia are also of great importance. They are certainly strategic in nature and, therefore, cooperation and coordination between Russia and Saudi Arabia are essential." Bin Salman also stated that Saudi Arabia believes that Russia is not only an important "world player," but also "a great power." He said: "As for our cooperation with Russia, it proceeds on a privileged basis. That is why our work together brings a lot of benefits to the Middle East. We would certainly prefer to avoid any negative scenario in the Middle East, and so would you. We would like to ramp up economic cooperation and want it to not just continue, but to progress faster."

Below is the joint Al-Falih-Novak statement on oil production:


Novak and Al-Falih congratulate each other on their handiwork (Source: Arabnews.com)

Russia And Saudi Arabia 'Shoulder The Responsibility Of Producing More Than 21-Percent Of Global Oil Demand'

"The Minister of Energy, Industry and Mineral Resources of Saudi Arabia Khalid A. Al-Falih and the Minister of Energy of the Russian Federation Alexander V. Novak met in Hangzhou, China on the sidelines of the G20 Summit.

"In their meeting, the Ministers recognized the importance of maintaining their ongoing dialogue about current developments in oil and gas markets and indicated their mutual desire to further expand their bilateral relations in energy. This stems from the fact that the two countries currently shoulder the responsibility of producing more than 21-percent of global oil demand which is required to fuel global economic growth, improve standards of living and help achieve the Millennium Development Goals.

"1. The Ministers recognize the current challenges in the supply side of the global oil market, including major contraction of capital investments in oil extraction on a global scale, particularly in exploration, as well as mass deferrals of investment projects, which made the market, as a whole, more volatile and therefore unsustainable to both producers and consumers in the long term. There is an imperative to mitigate excessive volatility harmful to global economic stability and growth.

"In this regard, the Ministers noted that constructive dialogue and close cooperation among major oil producing countries is crucial to oil market stability to ensure sustainable levels of investment for the long term. Therefore, the Ministers agreed to act jointly or with other producers. In addition, the Ministers agreed to continue consultations on market conditions by establishing a joint monitoring task force to continuously review the oil market fundamentals and recommend measures and joint actions aimed at securing oil market stability and predictability.

"2. The Ministers agreed to promote cooperation between the Kingdom of Saudi Arabia and the Russian Federation in the oil and gas industry, including deployment of new technologies, exchange of information and expertise to raise the level of technology applications in production, refining, storage, transport and distribution, as well as equipment production, support services such as engineering, manufacturing and research activities, along with collaboration in power generation and renewable energy.

"3. The Ministers committed to explore the possibility of creating a joint database on advanced energy technologies, along with feasibility assessments of their deployment, utilization, and financing through sovereign funds of both countries.

"4. The Ministers decided that the first meeting of the Saudi-Russia Working Group on oil and gas cooperation established according to Article 4 of the Cooperation Agreement between the Government of the Kingdom of Saudi Arabia and the Government of the Russian Federation on oil and gas cooperation dated the 2nd of September 2003 and the Execution Program of the agreement dated the 18th of June 2015, shall be held during October 2016, to enhance the cooperation, and implementation of what has been agreed upon. Furthermore, the Ministers will meet again on the sidelines of the upcoming meetings of IEF in Algeria and OPEC's November meeting in Vienna."

 

Endnotes:

 

[1] Tass.ru, September 5, 2016.

[2] Tass.ru, September 5, 2016.

[3] Reuters.com, September 1, 2016.

[4] Bbc.com, September 5, 2016.

[5] Tass.ru, September 6, 2016.