Saudi crown prince seeks Russian help to tame boom-bust oil cycles

Saudi crown prince seeks Russian help to tame boom-bust oil cycles

By Luke Vargas   
Published
Saudi Crown Prince Mohammed bin Salman visits the U.N. headquarters in New York on March 27, 2018. UN Photo/Eskinder Debebe
Saudi Crown Prince Mohammed bin Salman visits the U.N. headquarters in New York on March 27, 2018. UN Photo/Eskinder Debebe

Prince Mohammed bin Salman hopes to partner with Russia for up to two decades to coordinate oil production beyond the OPEC oil cartel.

UNITED NATIONS – Saudi Crown Prince Mohammed bin Salman is continuing his visit to U.S. this week, and he’s generating headlines in energy markets by announcing his intention to partner with Russia for up to two decades to coordinate oil production and stabilize prices.

Saudi Arabia has long been the core member of the OPEC oil cartel, and formalizing some policy overlap with non-OPEC member Russia would be a major deal, at least theoretically.

“Signing a deal on paper would not do the job.”

Robert McNally is the president of the Rapidan Group and served President George W. Bush’s top energy adviser.

“The market will, probably quickly, test the organization’s meddle.”

According to McNally, the near and medium-term challenge facing Saudi Arabia and Russia and the rest of OPEC aren’t the low prices of recent years, but a possible oil price boom caused by several years of under-investment in oil production and a slower-than-expected shift to renewable energy and electric vehicles.

If that happens, producers could find themselves back in 2008 territory, when oil surged to $148 a barrel with no more oil left to pump.

“Most swing producers in history – especially the big ones, all of them – have failed not because they couldn’t prevent prices from collapsing by agreeing to cut, but because they couldn’t prevent prices from booming. They actually lost control on the upside.”

McNally says the Saudis are wise to sync up policy with Russia, but taming oil’s boom-bust cycles won’t be easy:

“They have to go well beyond signing a marriage contract. They have to show that they have collective will to adjust production up and down, to hold spare production capacity, and to act quickly, proactively and collectively to stabilize markets, to prevent big inventory swings one way of the other. And that is a lot easier said than done.”

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