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Geopolitics

Russia, Saudi Arabia Strengthen Ties

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The decision by the Opec-plus group on Aug. 3 to increase production next month by a combined symbolic 100,000 barrels per day in September suits Russia well.

Moscow is not interested in a significant growth of oil flows on the global market as it would like to see prices stay high, allowing Russia to keep offering steep discounts for its export volumes.

According to the Russian finance ministry, prices for Urals crude export blend averaged $78.41 per barrel in July.

Russian Deputy Prime Minister Alexander Novak said that despite a recovery in demand, the "cautious decision" by Opec-plus was due to market uncertainties, including the growing number of Covid-19 cases and the destruction of transportation and logistics chains because of sanctions against Russia, Novak told the Rossiya 24 TV channel.

The decision of the producer group also demonstrates that the Opec-plus de facto leaders Saudi Arabia and Russia remain aligned in their views on the global market and the way it should be managed.

Novak was in Riyadh on Jul. 29 for talks with Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman. The two discussed energy markets and trade and economic cooperation between the two countries.

Novak said that Russia and Saudi Arabia plan to develop cooperation in a wide range of areas, including energy, renewables, petrochemicals, technology and transportation, as well as education, health care and others.

Novak and the Prince

Together with Prince Abdulaziz, Novak co-chairs the intergovernmental commission between the two countries on trade and economic cooperation, which will gather for its next meeting in Moscow in the middle of October.

The new reality could require a new form of coordination between Russia and Saudi Arabia taking into consideration the changing patterns of flows of huge volumes of oil and products on global markets since the start of the war in Ukraine in February.

Novak's trip was preceded by a telephone conversation between Russian President Vladimir Putin and Saudi Arabia Crown Prince Mohammed bin Salman on Jul. 21, in another sign of the close coordination between the two countries.

The Opec-plus decision to increase output in September has little impact on Russia's quota as it is already producing some 1 million b/d below its ceiling.

According to sources familiar with Russia's official data, the country's crude oil and condensate production grew by a miniscule 0.1% in July from the previous month. It averaged 10.738 million b/d, 11,800 b/d higher than in June.

Production of crude oil without gas condensate could stand at 9.8 million b/d, according to Energy Intelligence estimations, while Russia's quota for July under the Opec-plus deal was set at 10.833 million b/d.

Russia was producing 10.5 million b/d of crude and 11.2 million b/d of crude and condensate before the current Opec-plus deal came into force in May 2020. Theoretically, that leaves it with spare capacity of about 500,000-700,000 b/d.

Russia's current flexibility to increase production is dependent on its ability to market its volumes, and this is the territory of uncertainty which will only grow next year after the oil embargo comes into force.

But Saudi Arabia and Opec's new secretary-general, Haitham al-Ghais, from Kuwait, seem ready to accommodate Russia.

Al-Ghais was quoted as saying to Kuwait's Alrai newspaper that Russia's membership in Opec-plus is vital for the success of the agreement. He added that Opec is not in competition with Russia, calling it "a big, main and highly influential player" in the world energy map.

Russian Joint Ventures Send Output Down

Output by Russian majors rose by nearly a combined 50,000 b/d last month from June. However, joint ventures, medium and small independents demonstrated a decline of nearly the same size.

Russia's three production-sharing agreement (PSA) projects were 19,300 b/d lower than in June. Sakhalin-1 PSA operated by Exxon Mobil nearly halted production completely, keeping it at a minimum level of just 5,430 b/d.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Topics:
Ukraine Crisis, Sanctions, Oil Supply, Opec/Opec-Plus
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