A ministerial committee of oil producing countries agreeing to the reduction of production held a meeting in Algeria on Sunday under the chairmanship of the two most important oil states: Saudi Arabia and Russia, represented by the two countries’ energy ministers, Khalid Al-Falih and Alexander Novak.
The two became work partners to prevent the decline and collapse of oil prices and ensure the stability of the markets two years ago. The meeting was attended by representatives of 21 OPEC producers and other countries, which became part of the oil alliance that enabled oil prices to increase from $40 a barrel to about $79, within a year, after the alliance reduced its production by 1.8 million barrels. Now this alliance is facing new developments on the oil front, most importantly, the US sanctions on Iran, which began to significantly impact this oil producing country, the output of which reached 3.427 million barrels a day in August.
However, since September, the country’s exports have been falling rapidly by about one million barrels a day. Even China, which was buying large quantities, about 700 to 700,000 barrels per day of Iranian oil, reduced its purchases. Those observing tanker activity saw that only two tankers of Iranian oil went to China, which is an exceptional drop of China’s purchase of Iranian oil. China has companies in the US stock exchange that also deal with the dollar and it would undoubtedly be affected if it does not comply with the sanctions. Most European companies, as well as Japan, India and South Korea have stopped their purchase of Iranian oil.
There is no doubt that the American president succeeded in pressuring the countries of the world, even those friendly with Iran, to stop buying oil. Iran has even begun stockpiling its own oil and condensates that it cannot sell in tankers in the sea. Under these conditions, as well as the poor political situation in Venezuela, an important producer in OPEC, where the country’s production is rapidly declining, allied producing countries will look into the possibility of increasing their production. This is especially in the light of expectations of an increased demand for oil in the coming period in order to prevent shortages and a significant rise in prices.
The price of a barrel of Brent has reached $78, but some predict it could exceed $80. While $80 would suit the producing countries, mainly Russia and the Gulf states, the United States, which is witnessing congressional elections in November, would prefer gas prices in the US do not increase.
America is a major producer of oil, with an output of over ten million barrels a day, but its refiners need oil imported from Saudi Arabia and others to produce gasoline. In addition to this, recent figures on US inventories have shown oil production predictions for the upcoming year were lower than in the past.
The countries gathered in Algeria will carefully consider the possibility of increasing production because they also do not want to flood the markets and reduce prices in a way that does not suit their economy. The Russian-Saudi partnership working on the oil market surprised everyone because Russia doesn’t have a history of upholding its commitments. Now, there is no doubt that matters have changed, especially after the meetings between the Custodian of the Two Holy Mosques King Salman, Crown Prince Mohammed Bin Salman, and President Vladimir Putin, who believed it was in the interest of his oil and gas- producing country to cooperate seriously to keep oil prices at the levels needed by this economy, even though Russia’s revenues do not all come from its oil, like the rest of the OPEC countries.
The Algeria meeting may reveal, once again, Russia and Saudi Arabia’s recognition of the need to continue their cooperation in order to prevent an oil shortage. At the same time, the countries attending the meeting will by very cautious in their decision to increase their production because they do not intend to dump markets and lower prices to levels that do not serve their interests.
This article first appeared in Arabic in Al-Hayat on 19 September 2018
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.