The Kremlin is strengthening its influence over the OPEC cartel (Yuri KADOBNOV)

Vienna (AFP) – This week’s OPEC meeting, which prolonged daily oil output cuts to support prices, illustrates the increasing influence that Russia wields over the crude-producing cartel, analysts say.

OPEC, pressured by booming US shale production, abundant global crude supplies and weak oil demand growth, cemented its ties with Moscow and other non-cartel partners with a formal charter, aiming to boost its market clout.

The so-called OPEC+ crude producing club, comprising 24 producers including Russia, has lengthened its pact to cut 1.2 million barrels per day by nine months to March 2020. 

Yet OPEC was beaten to the punch after Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammad Bin Salman pre-announced the extension — but not the exact length — at the Osaka G20 summit on Saturday.

Russia’s powerful grip was in further evidence on Monday when its Energy Minister Alexander Novak was the first person to reveal that all OPEC ministers had agreed to tack nine more months to the previous OPEC+ December agreement.

Russia, the second biggest global oil producer followed by number three Saudi Arabia, decided three years ago to hook up with OPEC to counter slumping oil prices.

– Taking over? –

John Hall, chairman of British-based consultancy Alfa Energy, told AFP that Moscow was clearly seeking to seize the initiative.

“I have always believed that Russia would never be a party to anything that it was not able to control and, having supported OPEC … Russia has not only taken over the timing of the meeting but also the outcome,” Hall said.

“Without Russia and other sympathising non-OPEC producers, Saudi would have lost control and OPEC would have failed in the face of rising US output, increasing the pressure on OPEC to cut its output and in so doing, see its market share diminish,” he added.

Meanwhile, Iran’s Oil Minister Bijan Namdar Zanganeh warned in Vienna that OPEC could “die” if its role was reduced to rubber stamping decisions made in advance.

Yet Saudi Arabia’s Energy Minister Khalid al-Falih remained resolute over Moscow’s contribution.

“I think Russia’s influence is welcome,” Falih said on Monday.

“Saudi Arabia and Russia are … delivering the largest cuts (so) we agree first and then discuss our agreement with our colleagues from other countries. I think it only helps to reach the unanimous consensus.”

Questioned about whether Putin’s Russia calls the shots now, he replied: “I don’t think so. I think Russia is very respectful of the nature of its role, Russia is certainly very respectful of Saudi Arabia, and they have compromised on certain positions.”

Falih added that Riyadh wanted to achieve a market balance for supply and demand — but that it needed non-OPEC players to step in.

“OPEC was trying to do it for a while, but let’s face it: we are less than 30 percent of global supply, so bringing more non-OPEC together with us has given a big boost.”

Vienna-based OPEC, which pumps a third of global crude, decided three years ago to hook up with non-cartel members to form OPEC+ to combat slumping prices.

In recent years, the cartel has lost valuable market share to the United States — whose booming shale output has transformed it into the world’s biggest oil producer and a net exporter.

The expanded group — comprising 24 crude producers including Azerbaijan, Kazakhstan, Malaysia, Mexico, Oman and Russia — accounts for almost half of world oil supplies.

– ‘Size matters’ –

SEB analyst Bjarne Schieldrop noted that Moscow and Riyadh needed other cartel members on board.

“If there is disagreement within OPEC, then Russia-Saudi cannot push or force through a decision,” he told AFP.

“On the other hand given the size of Russia and Saudi Arabia there won’t be a deal unless those two are in on it.

“Saudi Arabia and Russia could of course go it alone and flex their production together and skip the rest of OPEC. Saudi do not want to do that,” Schieldrop said. 

“They know that size matters in the global oil market. OPEC has become too small. OPEC+ on the other hand is big enough to matter and impact the global oil market.”

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.