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Will Russia and Saudi Arabia Cut back Oil Production? - ASHARQ AL-AWSAT English Archive
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Economy, Saudi Arabia, Iran, Oil, OPEC

Economy, Saudi Arabia, Iran, Oil, OPEC

Khobar- Oil rates have recently witnessed fluctuations after reported intentions of Saudi Arabia and Russia cutting back their production to support oil prices. Rates increased after OPEC announced collaboration supporting oil prices side by side with extra-OPEC producers.

London and New York based oil markets had closed weekly trade on Jan.29 with increased prices at a leading profit reaching 25 percent, after having hit its lowest in 12 years.

The increased support came consequential to predictions of primary oil producers, especially Saudi Arabia and Russia, agreeing on reducing oil production to put an end to one of the historically largest supply surplus ever reported.

Only last Thursday, Alexander Novak, Minister of Energy of Russia, revealed Russian intentions on joining OPEC member countries for a meeting, and the possibility of looking into the Saudi proposal on lowering production by 5 percent.

The speculations on oil production cutback were further promoted post the Venezuelan Oil Minister’s announcement on visiting both OPEC member countries and world oil producers to endorse the possibility of saving on production rates.

Economic analysts are very convinced that a list of countries’ economies stand on the verge of collapsing under the toll of depressing oil prices, and Russia heads that list. In 2015 Russia’s economy suffered first-hand the impact of oil rates taking a plunge, yet damage intensified more in 2016 with the Russian rouble falling in face of the US dollar.

* Absent agreement haunts collaboration

However, speculations on the matter are considered less likely to realize. Barclays and Goldman Sachs, major investing banks that directly impact global oil market, consider it a far reach for Russian perspective to coincide with OPEC’s view, regardless of the signs they have been sending off on cooperating with OPEC.

Even if Russia answers OPEC’s requests on the collective reduction, OPEC’s inter-member conflict on the cutback is still present. Iran, an OPEC member, harbors no intentions on currently reducing oil production under any circumstances given. It rather aims first at recouping its previous market share, which fell substantially after the oil ban it was subjected to since 2012, and lifted only on January 2016.

* Russian claims on a Saudi proposition are false

Sources told Asharq Al-Awsat that Russian claims on a Saudi Arabian proposition being put forth are completely not true. However, Saudi Arabia is completely open to cooperating with oil producers aiming to uphold the oil market’s stability.

On the other hand, Saudi Arabia stated that it will not swallow the application of production cutback all alone, a role it has previously played by being OPEC’s prospective oil producer.

Given that Russia portrays no inclination towards reducing production, then it is only reasonable for Saudi Arabia to refrain from participating in the cutback. Saudi Arabia holds the capacity to withstand the pressures of oil prices hitting lows far more than Russian aptitude.

Adil Abdul-Mahdi, Iraqi Minister of Oil, said that the present 30 dollar per barrel for oil, is a rate too low to and difficult to accept by anyone within OPEC or not. According to Abdul-Mahdi, many oil producers are selling their oil today at a loss with the current prices.

* Iran makes it difficult

While Russia remains ambiguous on its true position on the cutback, analysts agree that the major hurdle facing any agreement being reached is the Iranian stance. Iran is only focused on recovering its market share at any price and will not be compromising that with participating in a collective reduction.