Top oil producers Saudi Arabia and Russia made a joint statement at the G20 summit in China on Monday aimed at stabilizing crude prices. The joint statement was signed by Russian Energy Minister Alexander Novak and Saudi Energy Minister Khalid al-Falih. That alone should convince you to invest in oil immediately. Have you done that?

 

If you had, congratulations, for being a bigger fool than President Barack Obama who couldn’t believe he had just been called the “son of a bitch” by the Philippines badass President Rodrigo Duterte. Chances are, both Russian President Vladimir Putin and Saudi Deputy Crown Prince Mohammed bin Salman who attended the G20 summit were having a good laugh thereafter.

There was no, and will never be, a genuine cooperation between Saudi Arabia and Russia to stop the sagging crude oil prices. It was just a gimmick to drive up the price for a couple of days or weeks. How do you know it was a scam? Russian news agency Interfax said Russia and Saudi Arabia recognize the need to contain excess volatility in the market.

 

Russian Energy Minister Alexander Novak said the two countries were moving toward a strategic energy partnership and that a high level of trust would allow them to address global challenges. Mr. Novak described Monday’s announcement as an “historic moment” in relations between OPEC and non-OPEC members.

Saudi Energy Minister Khalid al-Falih said the agreement would also encourage other producers to cooperate. He, however, said – “There is no need now to freeze production … We have time to take this kind of decision … Freezing production is one of the preferred possibilities, but it does not have to happen specifically today.”

 

In a nutshell, the two top oil producers will form a working group to monitor the market and draft recommendations to stabilize oil prices and ensure steady investment in the industry. What this means is both countries were merely “fantasizing” about freezing production, while probably smoking weed in an air-conditioning room (*grin*).

Get real, how many times do you need to get conned by talks (and more talks) about boosting crude prices by freezing OPEC’s output? And there’ll more talking in Algeria later this month, and another one in Vienna in November. There’ll certainly be more talks next year, so keep dreaming that one day it will materialize.

 

The game here is pretty simple. Forget non-OPEC producers such as Russia. If Saudi couldn’t even convince and lead its own OPEC gang members into agreeing for a freeze in production, let alone a production cut, how could a Saudi-Russia cooperation work? If the Saudi couldn’t care when the crude hit US$30 a barrel, why should it worry when it’s nearing US$50 a barrel now?

Essentially, Saudi Arabia and Russia were spreading rumours with the press conference, knowing very well that there isn’t any concrete action to support their “desire”. To add insult to injury, Saudi’s production is running at top speed – pumping 10.7-million barrels per day. Russia, on the other hand, has been crazily pumping 10.843-million barrels per day as far back as June.

 

They max production then they talk about freezing production and markets are so stupid they take this as positive. Even if Saudi miraculously agrees to a freeze, which they don’t, how on earth could they convince their regional and religion rival Iran to do the same? Even if “Allah” tells Saudi to, they would not freeze or cut without Iran agrees to do it together, cheekily speaking.

In April, Russia was prepared to freeze output together with OPEC, but talks collapsed after Riyadh said it would agree to a deal only if Iran – OPEC’s third-largest producer – participated. Iran then argued that it needs to regain market share lost during years of Western sanctions, which were lifted in January.

 

Now, even if Russia can convince Iran to play balls, of which kingmaker Tehran will not in a thousand years, the U.S. shale oil production can always spring back into action to capture crude market share, something which Saudi will not tolerate in a million years. Ultimately, nobody is willing to be the first one to freeze the black gold production tap.

One has to remember that Saudi Energy Minister has already said that he doesn’t care about the price, and so did the Russian. Heck, then why did Russia and Saudi cook the drama at the Group of 20 Summit? Simple: it was more of a political statement than an economic requirement.

 

If you hadn’t notice, all the world leaders who flew into Hangzhou wanted to meet one person in China. Nope, it’s not China President Xi Jinping or U.S. President Barack Obama, but Russia President Vladimir Putin. Like a Hollywood celebrity, Putin’s appointment schedule for personal meeting was full.

From British Prime Minister Theresa May to Saudi Deputy Crown Prince Mohammed bin Salman, everyone seems to be avoiding President Barack Obama like a plague for Putin. After Russia was allowed to use Iran’s military base for the first time since the 1979 Iranian Revolution, Saudi is signalling – deliberately – to the U.S. that it can always choose Russia as its ally.

 

Russia, the traditional enemy of America, gladly obliged, of course, hence the gimmick Saudi-Russia oil cooperation, which is a big deal considering this is the first of such agreement between both nations in 15 years. It was also a brilliant tactical move by Putin because at the same time, he’s sending a signal to Iran that Russia can befriend Saudi as well.

 

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September 6th, 2016 by financetwitter

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