McQuaid Group: Russia responds to Saudi threat of higher production with one of its own.
McQuaid Group: Just days after a meeting of oil exporters failed to agree a framework by which output levels would be capped, Russia has claimed it stands ready to push oil production to new highs. The move is in response to a Saudi threat to flood the global oil market with even more supply.
Saudi Arabia’s fellow OPEC member, Venezuela warned that oil prices could crash again in the next few weeks if producers did not restart dialogue to pave the way for an output cap.
Venezuela and the biggest non-OPEC producer, Russia had been the main advocates for the output cap as both countries have been badly affected by low prices but the deal failed after Saudi insisted it would not sign a deal without Iran’s participation.
“The deal was supposed to help support prices by eliminating a significant amount of oversupply but the Saudi threat to ramp production up to 12 or even 13 million barrels a day would almost certainly send prices back to sub-$30-a-barrel levels,” said McQuaid Group’s commodities strategist Larry Birch
Russia’s counter-threat, if carried out, could put an end to any output cap deal but Birch believes the Saudis are essentially threatening Iran with the prospect of receiving even less for its oil than it does now.
“This isn’t just about oil; there’s a lot of acrimony between Saudi Arabia and Iran that has its roots in the kingdom’s actions in Yemen,” explained Birch. “The Saudis accuse Iran of supporting the Houthi insurgency and attempting to destabilize Riyadh and have been conducting bombing raids to prevent their advance.”
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