Brent crude surges in Asia after 2-year slump in crude price forces unlikely co-operation
The first global crude supply pact in 15 years has underlined the growing energy alliance between Saudi Arabia and Russia, as the depth of the two-year oil slump forces co-operation between once unlikely partners.
A pact by leading producers to cut output could quickly begin sopping up the glut on the oil market that has weighed on prices.
Saudi Arabia and Russia together account for more than a fifth of global oil supplies.
The agreement follows almost a year of petro-diplomacy that led Russian president Vladimir Putin and Saudi Arabian leaders to put aside differences over the war in Syria as their economies struggle to adapt to the halving in oil prices since mid-2014.
The direct co-operation between the world’s top two crude exporters comes after Saudi Arabia on November 30 led the 13-member Opec cartel in a deal to cut supply by more than 1m b/d, pushing prices up 15 per cent to above $54 a barrel.
The recent deals are the first joint cuts by OPEC and non-OPEC nations since 2001 and aim to reduce production by just under 1.8 million barrels per day.
Saudi Arabia has traditionally acted as the oil market’s so-called swing producer, raising production when supplies were tight and lowering them when necessary to bolster the market and support the price.
But in 2014 the rapid growth of US shale and other high-cost output, after almost four years of $100 oil, led Riyadh to abandon its role due to fear of losing market share.
The subsequent crash in prices has stalled non-Opec supply growth and led to as much as a trillion dollars in investment cuts, but also hammered the budgets of major oil producers.
US oil output has fallen by about 10 per cent since early 2015, but US shale drillers have cut costs dramatically and could respond to any price recovery.
Russia, one of the few non-Opec countries to successfully keep raising output during the slump. Russian output this year reached a record above 11m b/d, but a painful oil-price triggered recession — compounded by sanctions over Russia’s involvement in Ukraine — led Moscow to talks.
Some market watchers also still harbour doubts whether enough of their pledged cuts will be enacted to start drawing down the huge overhang of inventories that built up during the glut.