Looking to bolster its influence on the international oil market, Saudi Arabia is pushing Russia to enter into a formal pact with the Organization of Petroleum Exporting Countries (OPEC).
A bold motion will be proposed when OPEC members and other partners meet in Vienna on Feb. 18. Saudi Arabia, the undisputed leader of OPEC, will push a 10-member group of nations led by Russia to join a formal partnership with the international cartel, according to The Wall Street Journal. Negotiators hope to reach a final agreement when OPEC meets again in April.
The 10-member coalition includes Russia, Mexico, Kazakhstan, a few former Soviet Republics and other countries. Many of these governments, while not official OPEC members, worked with the cartel in past years to manipulate the oil market.
Such a move would give the cartel greater influence over global oil prices and help place a floor on falling prices.
A partnership would also help OPEC rival a flourishing U.S. fossil fuel industry. Fueled by the advent of hydraulic fracturing and a pro-energy administration, the U.S. has witnessed a shale oil boom, allowing it to surpass both Saudi Arabia and Russia in production in 2018, according to the Energy Information Administration (EIA).
In fact, the EIA predicted the U.S. could churn out more oil and liquids than Saudi Arabia and Russia combined by 2025.
“Gas prices drop across the United States because President Trump has deregulated Energy and we are now producing a great deal more oil than ever before,” the president tweeted in January, quoting “Fox and Friends.” “But this is bad news for Russia, why would President Trump do such a thing? Thought he worked for Kremlin?”
OPEC has taken notice of the U.S.’ rising dominance of the international fossil fuel industry. A leaked memo shared among OPEC analysts in late 2018 indicated the oil cartel was concerned with American production having an effect on global oil prices.
However, it’s not certain that Russia would be interested in jumping into an alliance with OPEC.
Moscow had already rejected a proposal by Saudi Arabia in 2018 to become a full-pledged OPEC member. While Russian President Vladimir Putin has a penchant for irritating European and American leaders, there is a limit to how much the Kremlin is willing to isolate itself from Western governments. Additionally, privately owned energy firms in Russia are not as open to production cuts.
“The Russians know that when they are forced to proactively keep their supplies tight at all times to support prices, they are only going to foster more barrels from other competitors who aren’t playing by such rules,” John Kilduff, a founding partner at a New York energy hedge fund, explained.
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