Exclusive: Saudi Arabia, Russia agreed in
Sept to lift oil output, told U.S.
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[October 03, 2018]
By Olesya Astakhova and Rania El Gamal
MOSCOW/DUBAI (Reuters) - Russia and Saudi
Arabia struck a private deal in September to raise oil output to cool
rising prices and informed the United States before a meeting in Algiers
with other producers, four sources familiar with the plan said.
U.S. President Donald Trump has blamed the Organization of the Petroleum
Exporting Countries (OPEC) for high crude prices and called on it to
boost output to bring down fuel costs before the U.S. congressional
elections on Nov. 6.
The deal underlines how Russia and Saudi Arabia are increasingly
deciding oil output policies bilaterally, before consulting with the
rest of OPEC.
The sources said Saudi Energy Minister Khalid al-Falih and his Russian
counterpart Alexander Novak agreed during a series of meetings to lift
output from September through December as crude headed towards $80 a
barrel. It is now over $85.
"The Russians and the Saudis agreed to add barrels to the market quietly
with a view not to look like they are acting on Trump's order to pump
more," one source said.
"The Saudi minister told (U.S. Energy Secretary Rick) Perry that Saudi
Arabia will raise output if its customers asked for more oil," another
source said.
Originally, the two countries had hoped to announce an overall increase
of 500,000 barrels per day (bpd) from Saudi-led OPEC and non-OPEC Russia
at a gathering of oil ministers in Algiers at the end of September.
But with opposition from some in OPEC, including Iran which is subject
to U.S. sanctions, they decided to defer any formal decision until a
full OPEC meeting in December.
PERRY LOOPED IN
Since then, Reuters has reported that Riyadh planned to lift output by
some 200,000 bpd to 300,000 bpd from September to help fill the gap left
by lower Iranian output due to the sanctions.
Russian output rose 150,000 bpd in September.
"I would expect Russia's oil production will hover at around 11.4 to
11.6 million bpd until the end of 2018 and may increase further to 11.8
million bpd later on in 2019," a source at a major Russian oil company
said.
Russian produced 11.36 million bpd in September, up from 11.21 million
bpd in August, Energy Ministry data showed.
Perry was made aware of the Saudi-Russia plan to lift output before the
Algiers gathering, meeting with Falih three times in September and Novak
once. The three did not meet together.
Perry's spokeswoman Shaylyn Hynes did not comment on details of the
talks but said the energy secretary, "continues to be engaged with
leaders from other major oil producing nations and remains confident in
their ability to boost output if needed".
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Saudi Energy Minister Khalid al-Falih attends a session of the St.
Petersburg International Economic Forum (SPIEF), Russia May 25,
2018. REUTERS/Sergei Karpukhin/File Photo
She said Perry had in recent meetings "impressed upon his
counterparts that keeping supply up is important for the global
economy".
Oil prices rose to $85 a barrel this week as buyers of Iranian crude
wound down their purchases to meet the terms of U.S. sanctions on
Tehran.
Sources said Riyadh would help fill that shortfall because buyers
needed replacement supplies. Saudi Arabia has spare capacity to
produce oil at a higher rate and holds a large volume of crude in
storage.
At the same time, Saudi Arabia is keen to maintain unity among the
so-called OPEC+ alliance, a group comprising OPEC states, Russia and
several other producers that has agreed on output curbs. That's
because it may need to change course and seek the collaboration of
OPEC+ for any future production cuts.
FOOTBALL DIPLOMACY
In the run up to the private deal with Russia, Falih flew to the
United States during the second week of September where he and
fellow Texas A&M University alumnus Perry attended a football game
in College Station, Texas.
Falih then held official talks with Perry in Washington on Sept. 10,
the U.S. Energy Department has said.
Perry flew to Moscow two days later to meet Novak, while Falih also
met Novak in Moscow a day later.
Perry told Reuters during his Moscow visit that Saudi Arabia, the
United States and Russia had enough capacity between them to
compensate for the loss of Iranian supply over the next 18 months.
After Moscow, Falih and Perry met again in Vienna where they
attended an event in the Austrian capital, sources said.
"Perry was aware that Russia is going to ramp up oil output," a
third source familiar with talks said.
It was at this point that Falih and Novak discussed announcing a
500,000-bpd increase at the Sept. 23 Algiers meeting of OPEC and
non-OPEC countries. The plan did not materialize, with any formal
decision deferred until a regular OPEC meeting in Vienna on Dec. 6.
"Saudi Arabia is not going to flood the market and risk a price
crash. Saudi Arabia has to work with other producers and see what
are they doing, who is raising exports and to which market," another
source said.
(Additional reporting by Timothy Gardner in Washington; editing by
Richard Mably and David Clarke)
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