Challenges ahead as KSA looks to long-term OPEC-Russia oil deal

New York:The potential deal between the Organization of the Petroleum Exporting Countries (OPEC) and Russia - announced by Crown Prince Mohammed bin Salman - is a game-changer in the global energy industry.
But it faces hurdles before it can be implemented and maintained according to the ambitious schedule outlined in New York.
Daniel Yergin, an energy expert and author of the Pulitzer Prize-winning history of oil "The Prize," told that the possible deal "represents a realignment that reflects the new realities of oil and international relations."
The crown prince said that the Kingdom and Russia were in talks to extend an agreement on output - sealed in Vienna in late 2016 on a temporary basis - to a longer-term pact of 10 to 20 years.
"We are working to shift from year-to-year agreement to a 10 to 20-year agreement. We have agreement on the big picture, but not yet on the detail," the crown prince said.
If the deal goes through, it will put in place a new force in the global oil industry, with two of the top three producers, Saudi Arabia and Russia, acting in unison. With around 40 percent of the world's output between the two producers and the rest of OPEC, the alliance would be a dominant force in the energy industry, able to control supply and - crucially - the price of oil for the next two decades.
But it is by no means a done deal. Ellen Wald, an expert on Saudi energy and author of the forthcoming book "Saudi Inc. The Arabian Kingdom's Pursuit of Profit and Power," said: "It would be impossible to extend the current production deal for 10 to 20 years because nobody knows what market conditions will be in the future."
"What they must be referring to is a discussion on making Russia what amounts to a de facto OPEC member for a certain number of years," she added.
But there are economic, financial and geopolitical challenges ahead before such a deal - likely to form the centerpiece of negotiations at the next OPEC meeting in Vienna in June - can be clinched.
The current arrangement - dubbed the "Vienna Alliance" by oil experts - has been credited with getting the price of crude back from the doldrums of 2014 and 2015. From a high of more than $100 a barrel after the global financial crisis, the price of a barrel of crude fell below $30 in early 2016.
The agreement on output helped stabilize that price last year, with a sustained recovery coming in the second half of the year as it looked as though the deal was going to hold longer than a few months. Brent crude was trading in New York yesterday close to the $70 a barrel level seen as the "Goldilocks" level - not too cheap and not too expensive - to balance the demands of global producers and consumers. Agencies
Source: Agencies


  
  

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