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Saudis, Russia meet with future of Opec+ cuts still unresolved

Saudis want to extend curbs beyond deadline, but Russia seems to be holding back

Russian Energy Minister Alexander Novak, and Saudi Arabian Energy Minister Khalid Al-Falih at the one-day Opec+ group meeting in the Saudi city of Jeddah on May 19. Mr Novak and Mr Al-Falih will meet again in St Petersburg on Thursday for the International Economic Forum hosted by Mr Putin.


A YEAR ago, in the enduring twilight of one of St Petersburg's famous "white nights" of summer, Saudi Arabia and Russia reached an agreement that set a new direction for the oil market.

This week, when Energy Ministers Alexander Novak and Khalid Al-Falih meet again in the northerly city that's President Vladimir Putin's hometown, resolving their differences may not be so easy for the two architects of the Opec+ agreement. The Saudis clearly want to extend the group's production curbs beyond their expiry at the end of this month, but Russia has been at best non-committal.

Right now, they can't even persuade the rest of the group to agree on a date for the group's usual mid-year meeting in Vienna.

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Diverging interests and surging market volatility are making their decisions more difficult. Oil is torn between the bearish influence of US-instigated trade wars and the bullish threat of supply disruptions from Iran to Venezuela.

While Saudi Arabia needs higher prices and has enthusiastically reduced production, the benefits for Russia aren't so clear and it was slower to make the cuts.

"I would expect a stronger message from Al-Falih" on extending the cuts, said Giovanni Staunovo, an oil analyst at UBS Group AG in Zurich. "Novak will keep all options open."

Mr Novak and Mr Al-Falih will meet in St Petersburg, Russia's second-largest city from June 6, to participate in the International Economic Forum hosted by Mr Putin. That will be the first face-to-face meeting between the two ministers since Jeddah in May, when the gap between their interests became visible.

Mr Putin, who has the final word on Russia's policy of cooperation with the Opec, will make a keynote speech at the forum on Friday, according to the official programme.

But on Thursday Mr Putin said Russia had differences with Opec over what constituted a fair price for oil, but that Moscow would take a joint decision on output with Opec colleagues at a policy meeting in the coming weeks.

Mr Putin said a price of US$60-US$65 a barrel suited Moscow, while Saudi Arabia wanted a higher price. He added that the decision by Opec and its oil exporting allies should take into account the decline in production in Iran and Venezuela, and problems in Libya and Nigeria. He declined to say what Russia would do with output in the second half of this year.

In April, he was vague on whether the nation would support an extension, saying that a lot will "depend on the market situation."

Mr Putin so far has no plans for bilateral talks with the Saudi delegation, his aide Yuri Ushakov told reporters on Tuesday. He didn't rule out "a contact" with Mr Al-Falih on the sidelines of the forum as there may be "unplanned meetings."

In any case, Mr Al-Falih may have a chance to talk to Mr Putin at a Thursday evening meeting the Russian leader traditionally holds for foreign investors.

Mr Putin's closest oil ally, Rosneft PJSC chief executive officer Igor Sechin, has long been sceptical of the benefits of Opec cooperation and renewed his criticism this week.

Russia's share of the global oil market is already under threat due to interruptions in exports to Europe after the Druzhba pipeline became contaminated with chemicals, Mr Sechin said. If Russia continues to cap its oil output, rival US producers will "fill the void and take up the market share," he said.

Last month, Finance Minister Anton Siluanov said Russia will need to weigh all the pros and cons of extending the pact. The nation's official statistics show the deal hurting the nation's economy in the first quarter.

Still, in his most recent interview to Saudi Press Agency, Mr Al-Falih said he sees "an emerging consensus among Opec+ countries" on cooperation in the second half of this year.

US oil prices fell back into a bear market on Wednesday as fears of a global trade war eclipsed any concerns about supply disruption.

Just minutes after Brent crude fell below US$60 a barrel for the first time since January, Opec's top official said the group will take "economic bearishness" into account when they meet in the coming weeks, and are committed to keeping oil markets balanced this year and beyond.

"There has also been a significant change in market sentiment, in both equity and financial markets" that has worsened many institutions' outlook for oil demand growth, Opec Secretary-General Mohammad Barkindo said in remarks delivered via video link at a conference hosted by RBC Capital Markets in New York. BLOOMBERG, REUTERS