Russia and Saudi Arabia sign joint statement to stabilize oil market

Russia and Saudi Arabia have agreed on measures - joint or in cooperation with other oil producers - with the aim of maintaining stability on the crude market and providing a sustainable level of long-term investment. That's according to a joint statement signed Monday by Russia's Energy Minister Alexander Novak and Saudi Arabia's Minister of Energy, Industry and Mineral Resources Khalid Al-Falih, TASS reports.

In the statement, the ministers recognized "the current challenges in the supply side of the global oil market, including major contraction of capital investments in oil extraction on a global scale, particularly in exploration, as well as mass deferrals of investment projects, which made the market, as a whole, more volatile and therefore unsustainable to both producers and consumers in the long term," as well as "an imperative to mitigate excessive volatility harmful to global economic stability and growth."

"In this regard, the ministers noted that constructive dialogue and close cooperation among major oil producing countries is crucial to oil market stability to ensure sustainable levels of investment for the long term. Therefore, the ministers agreed to act jointly or with other producers," the statement said.

Also, "the ministers agreed to continue consultations on market conditions by establishing a joint monitoring task force to continuously review the oil market fundamentals and recommend measures and joint actions aimed at securing oil market stability and predictability," TASS quoted the document as saying.

According to the statement, the first working group meeting will be held in October. The energy ministers of the two countries will meet in October in Algeria, and in November in Vienna.

In an interview with Vestnik Kavkaza, deputy director at the Institute of Energy and Finance, Alexey Belogoriev, expressed confidence that Moscow and Riyadh are mainly planning to affect a short term price conjuncture, using this statement. 

"Such documents have manipulative nature. It is an attempt to influence the mood of speculators in the oil market through information. This scheme was already tested this winter and spring, when the oil prices have increased and stabilized at a higher level due to rumors about possible agreement on oil output freeze between OPEC countries. Everyone saw that this mechanism works, including the Russian Energy Ministry," the expret noted.

He also drew attention to the fact that current price comfort does not require any radical agreements, which could actually affect quotas. "Agreements on oil output freeze at any level are only possible if prices will drop below $30 mark, and it won't happen right now. At the moment, there are no visible topics that require coordination between Russia and Saudi Arabia. The coordination is possible only at the level of such political statements. But there is no doubt that such contacts are necessary," he believes.

According to a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov: "They deliberately chose this imprecise formulation, because it does not mean that Russia and Saudi Arabia agree to freeze the level of oil output. It is clear that Moscow and Riyadh are trying to influence the market and traders," Yushkov noted.

"Traders now have positive expectations, so the oil prices are increasing, even though no specific agreements were announced. So now we can expect a wave of statements from other exporting countries that they support Russia's and Saudi Arabia's statement, and it will strengthen this trend, which will lead to higher oil prices," he concluded.