Oil prices have surged by 3% after Russia and Saudi Arabia announced a joint production freeze agreement in a bid to stabilise the crude oil market.
According to the statement made during the G-20 summit in China, the two powers are planning to support the stability of the marketing by ensuring “a stable level of investment in the long-term”.
To this end, the producers announced they will form a group to monitor the market, with Russia considering the possibility of a crude production free in this “historic” moment.
Crude Oil Prices Up on Russia and Saudi Agreement
The Russian Energy Minister Aleksandr Novak said that Russia has reached an agreement with Saudi Arabia to stabilise the situation in the oil market and a production freeze could be the most efficient measure.
Oil Prices Stabilise As Russia & Saudi Oil Ministers Agree Production Freeze
His Saudi Arabian counterpart, Khalid Al-Falih, called on other producers to join the agreement, so that a consensus can be reached.
However, the Saudi minister said that an output freeze is not “necessary” at this point, as the market is improving and prices are bound to reflect this soon.
In Novak’s view, a way to tackle the situation would be for the two countries to choose a month that would be considered the benchmark for the production freeze, starting from the second half of this year, getting all the support needed from other producers.
Analysts Scorn Russia and Saudi Ties
The agreement has been welcomed by other producers, namely Kuwait and UAE, although analysts continue to say that Russia and Saudi Arabia are highly unlikely to reach a joint production freeze.
This is mainly because Saudi Arabia continues to show high levels of production, Russia does not have the means to cut output and other producers would have to agree to this decision, namely Iran, who has actually announced plans to boost production.
Also, OPEC has already seen several attempts to curtail output fail in the past, mostly because Saudi Arabia insisted on keeping its output high to secure market share.