By ETF Heat Map Team

The fact that Russia and Saudi Arabia, two top oil producers in the world, have agreed on a tentative alliance and lead others in controlling the oil market production has made crude oil prices to go up after the recent G20 summit in China. According to Brent crude futures for November, delivery contracts increased to approximately $47 for each barrel. Earlier on they had gotten to a high of $49.40 per barrel while they were still hopeful that the two oil super powers would cooperate.

Russia and Saudi Arabia gave a side statement at the recently concluded G20 summit indicating that they had consented to come up with a committee that would review the oil market basics and advice on future measures that would lead to oil market stability.

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USO

Additionally, Alexander Novak, the Russian Energy Minister stated that the two nations were forming a partnership in the energy sector and that the trust built from that would give them a platform to address the global challenges. Khalid al-Falih, Saudi Arabia’s energy minister gave a press briefing via a television channel in the UAE stating that he had high hopes concerning partnering with the other crude oil producers, prior to the meeting which will be held in Algiers this month. According to him, stopping production was not the only viable solution.

Mr. Al-Falih’s promise to make an important announcement in the near future about the oil markets during the G20 summit in Hangzhou led to an increase of oil prices by approximately 5.5%. According to him, the oil market is moving in the right direction and he went ahead to state that he did not see any urgent need to restrict production indefinitely before reconsidering the delicate supply and demand relationship.

Mohammed bin Salman, Saudi’s deputy crown prince, held separate talks with Russia’s president Vladimir Putin where he stated that their cooperation would reap huge benefits to the global crude oil market. The partnership between Russia and Saudi is yet to bear any fruits as far as stabilizing the oil market is concerned. However, the fact the two parties have agreed to sit on the same table to work together is assurance enough that they are developing trust and they have come to appreciate that cooperation is important for the recovery of the oil market.

The other important aspect according to Hans Van Cleef, senior ABN Amro economist, is a verbal agreement to push the resurgence towards $50. He went ahead to explain that if the prices remained low prior to meeting in Algiers then they face the risk of Saudi Arabia and Russia deciding to take an alternative action since both nations predict and agree with Iran’s planned increased oil output to pre-economic sanctions levels. Allowing Iran to potentially make up its’ lost market share by producing at pre-economic sanction levels will also bring Iran back to the negotiation table.

Algerian Minister of Energy, Noureddine Boutarfa, recently stated that ahead of the Algiers meeting that an oil price less than $50 per barrel is not acceptable and that OPEC members need to work together to address this issue.

Al-Falih concluded by saying that they are expecting demand and supply to stabilize this year, and this would be made possible by a synchronized and proper unanimous decision on the issues surrounding overall oil production levels.

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