After an initial jump in oil futures, fuelled by the Russian – Saudi Arabian announcement of cooperation on strategies to stabilise the oil market, Brent Crude has again retracted below $48 per barrel.
Russia and Saudi Arabia agree on collaborating on strategies to stabilise the oil market
Russian Energy Minister, Alexander Novak, and Saudi Energy Minister, Khalid al-Falih, made the announcement at a G20 news conference in Hangzhou, China.
In the statement, the two state representatives voiced their countries’ recognition of the necessity to contain excessive volatility in the oil market and announced, that the two top oil producers will be leading the formation of a working group which will monitor the oil market and make recommendations targeting the stabilisation of the oil price.
The countries hope that other OPEC countries will join the initiative to coordinate a response to the commodities slump, which started more than two years ago.
A “historic moment” for OPEC and non-OPEC oil producer relations
Novak said, that the announcement of the countries collaboration presents a “historic moment” in relations between both OPEC and non-OPEC oil producing countries.
He also suggested that a production freeze would present a way to stabilize oil prices.
However, attempts at oil production freezes have failed in the past. In many instances freeze initiatives failed because Saudi Arabia was unwilling to commit to the measure, and Saudi Minister Falih said in an interview with Saudi-owned Al Arabiya TV, that “Freezing [production levels] is one of the preferred possibilities but it’s not necessary today.”
Although this divergence in opinion from the two sides represents a challenge, Novak specified to reporters, that Russia would be willing to accept any month of the second half of this year to choose as a Benchmark for a production freeze, further encouraging Saudi Arabia and other OPEC countries to engage with the idea.
CNBC stated that “this time around, Iraq and Iran’s cooperation will be key if a broader deal on oil production levels is sought.”
OPEC will be holding informal talks in Algeria in September and an official meeting in Vienna in November. Both assemblies will be accompanied by a meeting between the Russian and Saudi Arabian Energy Ministers.
The first official meeting of the new working group will be held in October.
Oil futures rise initially but retract slightly on gains in the afternoon
On the news, Brent Crude (CO1:COM) increased 5.6%, to $49.31bbl. by 10.25am. It has since retracted to stand at $47.49bbl. at 5.17pm, up 1.41% from market open.