Russia and Saudi Arabia alone produce almost as much oil as the rest of OPEC combined,” says Jim.
That means even if smaller OPEC members cheat on the production caps — which happens a lot — it doesn’t make a big difference to global supply. “Saudi Arabia and Russia maintained their production discipline and have maintained the price of oil in a relatively narrow range of $40–60 per barrel since mid-2016,” he says.
Their mutual objective: Keep prices high enough to generate sufficient revenue for the Saudi Arabian and Russian governments… while keeping them low enough to put a lid on profits for their fiercest competitors — American shale-energy producers.
Even Bloomberg has noticed the emerging relationship: “The Saudi-Russian rapprochement marks a policy change between two unlikely partners. Saudi Arabia is historically a staunch ally of the U.S., Russia’s longtime adversary and the main partner in the discovery and production of the kingdom’s crude. The recent boom in U.S. shale production proved a turning point, with Saudis and Russians recognizing a shared interest in defending against this contributor to a global supply glut and working closely together to reach the cuts accord.”
Jim’s conclusion: “Saudi Arabia and Russia will use active measures including production cuts to keep the price of oil from going higher. The $60 per barrel ceiling is crucial for keeping new frackers on the sidelines and discouraging new production and exploration.”
