How a Saudi-Russian Standoff Sent Oil Markets Into a Frenzy

“The market really was banking on this alliance between OPEC and Russia,” said Neil Beveridge, an analyst at Bernstein, a market research firm. With that relationship apparently sundered, “there is just no support,” he added.

The Russians and the Saudis have long had a fraught relationship.

Despite having enormous oil reserves, Russia and the Saudi Arabia have rarely seen their way to cooperation. In his autobiography, “Out of the Desert,” Ali Naimi, the longtime Saudi oil minister, recounts that on the eve of what became a crucial OPEC meeting in November 2014, he met with Mr. Novak to ask for help in dealing with a growing oil glut. Joining in the talks was Igor Sechin, a close associate of President Vladimir V. Putin who is chief executive of Rosneft, Russia’s largest oil company.

The Russians refused to go along, Mr. Naimi says, and he packed up his papers and washed his hands of trying to stabilize the market through cuts.

A price slide to below $30 a barrel focused minds, eventually persuading the Russians to join forces with the Saudis. A kind of bromance developed between Mr. Novak and Khalid al-Falih, who succeeded Mr. Naimi as Saudi oil minister in 2016. The two put on what seemed like natural displays of camaraderie at OPEC news conferences.

But there were tensions, and for at least a year the Russians hinted that they were tiring of the arrangement, which capped the growth of oil companies like Rosneft. As production from shale continued to rise, OPEC and its allies had to keep cutting.

“They could see an endless series of cuts going forward, “ said Bhushan Bahree, a senior director at IHS Markit, a research firm. “They wanted to go back to growth rather than continue this arrangement with the Saudis.”

For their part, the Saudis absorbed most of the cuts to keep Russia on board, a situation that also stoked tension. In addition, Mr. Falih was fired last year by Crown Prince Mohammed bin Salman and replaced by the prince’s older half brother, Prince Abdulaziz, who is a veteran oil official but does not seem to have the warm relationship with Mr. Novak that Mr. Falih enjoyed.

Article source: https://www.nytimes.com/2020/03/09/business/energy-environment/oil-opec-saudi-russia.html