The main question for oil analysts at present is whether Putin really stands behind his assessments. By reiterating that Russia is happy with lower prices and suggesting that the Russian government budget is based on $40 per barrel Putin is taking a risk. When analyzing the current state of the Russian economy, its global power projections and the extremely high costs of its ongoing military operations in Syria and elsewhere, higher oil and gas revenues would be a godsend. Putin’s dream of a Pax Russia cannot be built on $40 per barrel, not even on $60-65 per barrel. Moscow and OPEC have set up a marriage of convenience, but if Russian oil and gas oligarchs, the main support base of Putin at home, start to complain, the Russian tsar will need to act. It seems that the signs of political infighting have now become clear, Novak is lending credence to the idea that Russian oil companies may be running out of patience.
Strategically, lower oil prices would not only to increase Russia’s market share, at the expense of former allies Venezuela and Iran, but would also help to constrain US shale. Saudi Arabia’s position on production is entirely different. Faced by high expenditure patterns due to the Kingdom’s economic diversification plans and regional military engagements, Riyadh needs a higher oil price. Change is being brought to the country slowly and with minimum risk to the regime. Higher oil prices will be vital if Saudi is to stand a chance of successfully implementing its visions.
Russia will be of particular importance in the coming weeks. Putin is facing the end of his political reign in the coming years, and growing dissent within the oil and gas sector is now noticeable. The Russian leader, maybe still hoping for a new political career, needs the support of Rosneft, Gazprom and others in order to survive and keep his legacy in place. Taking all of this into account makes the odds of Russia taking a bearish stance on oil all the more probable. It is likely that a roll-over of the agreement will not be issued, with heated discussions already happening between the main parties. It seems that it is not Trump who will influence oil markets in the near term, but rather two Arab Crown Princes and a Tsar heading for retirement.
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