The pact needs to be operationalized into an oil freeze deal which could then see reduction in crude oil production from two of the world’s top producers.
In a development that could potentially have far reaching consequences, Russia and Saudi Arabia have agreed to cooperate in the oil market. If two of the world’s top producers collaborate to control oil production, the glut in the global oil pool could be potentially controlled.
Both countries have issued a joint statement which was signed by their respective energy ministers in China on the side-lines of the G20 meeting.
Russian Energy Minister Alexander Novak has stated that both countries were moving towards a strategic energy partnership and their high level of trust could allow them to address this global challenge.
His Saudi, Khalid al-Falih, counterpart has also said, this agreement could also encourage other oil producers to fall in line.
Ahead of this news conference, oil prices had risen by nearly 5%. With the agreement not yielding any immediate results, they rose by a further 2% by 1130 GMT.
“There is no need now to freeze production … We have time to take this kind of decision,” said Falih. “Freezing production is one of the preferred possibilities but it does not have to happen specifically today.”
Despite the joint statement by the world’s two top producers being short on action, the development is significant since it marks a new development in Russia-Saudi relationship.
The two countries have been essentially fighting a proxy war in Syria, with Moscow being a big ally of Iran – Riyadh’s arch rival.
If any deal materialises out of this joint statement, it would be the first in 15 years since Russia agreed in principle to cut oil production along with OPEC, although it never followed through with that promise.
If global crude output levels are frozen at the beginning of 2015 levels, it would mean an effective production cut.
Only last week, Russian President Vladimir Putin said a new deal on oil output could potentially involve some compromise on Iran’s part.
“We believe that the oil market rebalancing has been rather delayed … And certainly joint actions which were considered at the beginning of the year, including a freeze, could have drawn much nearer the date of rebalancing of the respective markets,” said Novak.
Russian news agency has cited Novak as saying, “We are ready, if there is such a decision, to join (an oil output freeze)”.
“The market is getting better and we noticed that the prices reflect this (improvement),” said Falih. “A coordinated and appropriate, collective decision on production will help bring balance and reduce inventories in a more timely manner”.