Saudi Arabia, Russia role ‘critical in rebalancing oil markets’

Saudi-based economists see a crucial role for the Kingdom and Russia in rebalancing the energy markets as US oil prices rose above $50 a barrel in New York Thursday for the first time since June.
Prices gained strength as Algerian Energy Minister Nouredine Bouterfa said that OPEC could cut production at its late-November meeting in Vienna by another 1 percent more than the amount agreed in Algiers last month if producers reckon it is needed.
OPEC sources ​told Reuters that​ Saudi, Iranian and Iraqi energy ministers will be among key OPEC representatives to meet Russia on the sidelines of an energy conference next week in Istanbul.
“Russia will be instrumental in rebalancing oil markets, especially that it currently pumps more than 11 million barrels per day,” Tamer El Zayat, senior economist at the National Commercial Bank, told Arab News.
Another regional analyst added: “Russia is critical because its volumes are comparable to Saudi Arabia.”
A Saudi university professor earlier told the local media that oil prices would stabilize at $50 per barrel in the last quarter of the current year, then jump to $60 by the first quarter of 2017.
“This could only be achieved if the OPEC member countries commit to their production quotas in addition to cooperation from Russia, which desires to have oil prices increased to get liquidity and, hence, support its economy,” Abdulwahab Al-Qahtani, professor of strategic management and human resources development at King Fahd University of Petroleum and Minerals, told Al-Riyadh daily.
Consultancy group PIRA says it believes Saudi Arabia is trying to move prices to $60 a barrel from $50.
OPEC’s decision to embrace production cuts will help move crude prices toward a target of $50 to $60 per barrel, Gary Ross, chairman of consultancy PIRA Energy Group, was quoted as saying in a Reuters report.
Andrew Gilmour, deputy chief economist, Samba Financial Group, also commented to Arab News on Russia’s role in the oil market.
“It would be helpful if Russia were to join OPEC in cutting output, but not essential,” Gilmour told Arab News.
“As long as an agreement can be reached at OPEC’s Nov. 30 meeting on individual quotas that lead to a cut of around 700,000 barrels per day, then this should be sufficient to accelerate the rebalancing of the market,” he said.
Gilmour added: “I would agree with PIRA that Saudi Arabia, along with other OPEC states, is looking to push the Brent oil price up to a $50-$60 range.”
He said: “Two years of weak oil prices have already prompted unprecedented moves to cut spending, raise debt, and introduce reforms, including the pending VAT. This has had an adverse impact on growth and bank liquidity, which would be alleviated somewhat by the boost to government revenues higher oil prices would bring.”
Further commenting on market developments, Tamer El Zayat told Arab News: “I have no doubt that a possible cut will be announced given the fact that Russia was trying to mediate for an OPEC move as well as coordinate oil policy with Saudi Arabia.”
He said: “Indeed, the positive spillover from higher crude prices will trickle on the budget for next year, with expectation of a significantly lower deficit around SR120 billion, yet the government is adamant not to overspend, but rather continue on this path of fiscal consolidation. In my opinion, higher oil revenues will not encourage overspending and I am expecting more subsidy reforms as per National Transformation Program.”
A regional analyst, who wished to remain anonymous, told Arab News: “Russia has been somewhat shielded from the impact of lower prices because of the sharp devaluation of the ruble. However, Russia is a heavily oil-dependent economy with a president keen to protect and boost his popularity. They are very keen to have higher prices, partly because their ability to boost production by much is in serious doubt. A lot of the fields are mature, declining fields which risk being mismanaged if they need to make revenues through volumes rather than prices. So there is alignment of interests. But the Russians do not want to lose face, nor do they wish to see others benefit at their expense.”
Al-Qahtani also told the local media that oil prices would increase if demand grows in China.
He suggested that there should be a strategy to move to the East, including China, South Korea, Japan, India and other Asian “tiger” economies. That will also make a balance in the Kingdom’s economic and political relations, he said.
He added that the non-formal meeting of the OPEC member countries, held in Algiers, succeeded for many reasons. Most member countries showed keen interest in reach a production ceiling deal satisfactory to OPEC and non-OPEC producing and consuming countries because the world economy needs stability, said the professor.
Saudi Arabia played a key role in the success of the meeting, he said.
Iran rejected calls for production cuts but others to slash output, he suggested.
According to Reuters, oil has gained more than $6 a barrel since ​OPEC announced at informal talks in Algeria on Sept. 28 that it hopes to reduce output to 32.5 million-33 million barrels per day. That would remove about 700,000 bpd from a global glut estimated by analysts at 1.0 million-1.5 million bpd.
Brent crude was up 54 cents, or 1 percent, at $52.40 a barrel by 1546 GMT, rising earlier to $52.65, its highest since June 9. It settled at below $46 prior to the announcement​ of another OPEC meeting.​
US West Texas Intermediate (WTI) crude rose 48 cents to $50.31. WTI settled below $45 seven sessions ago.