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The fragile alliance between the world’s two largest crude oil producers faces its first big test, with Saudi Arabia still waiting on a clear commitment from Russia to back an extension of output cuts throughout 2018.
The two oil superpowers, which came together last year to reverse tumbling oil prices, have appeared unable to finalise a deal in the run-up to Opec’s meeting on Thursday, which brings together countries both inside and outside the cartel that together pump over half the world’s crude.
While inching closer, Moscow is dragging its feet over signing up for all of next year, sparking talk that a partnership that has underpinned oil markets for the past year could be under strain.
Khalid al-Falih, Saudi Arabia’s oil minister, on Wednesday delivered an unequivocal message to his Russian counterpart Alexander Novak, saying they still had work to do to definitively end the worst oil crash in a generation.
“The job is not yet done,” Mr Falih told a committee of Opec and non-Opec ministers, including Mr Novak, who have been monitoring the effectiveness of a deal that has cut 1.8m barrels a day — or roughly 2 per cent of global supply — since January.
“To succeed in the future it is crucial we have everyone on board.”
Mr Novak, who has faced pressure from Russian companies to allow them to bring new oilfields online, said the deal — which boosted Brent crude by 30 per cent in 12 months to above $60 a barrel — had been “very successful” so far.
But he indicated agreeing the extension’s duration would go down to the wire, saying the “exact parameters” were still to be agreed.
Helima Croft at RBC Capital Markets said Mr Falih’s stance suggested he feared agreeing a deal shorter than the nine months many traders believed was needed to keep draining oil inventories and hold prices above $60.
“Falih had a sense of urgency,” Ms Croft said. “[If they] don’t get together and extend the deal as planned, the market could really fall hard.”
The joint monitoring committee of Opec and non-Opec countries did not come down heavily either way on Wednesday, recommending either a nine-month or six-month extension, according to the Kuwaiti oil minister.
The intransigence of Russia, leader of non-Opec countries involved in the deal, has unnerved oil markets that have broadly been pricing in a deal extension for all of 2018.
Russian president Vladimir Putin said in October the deal could be extended throughout 2018, a move backed by Saudi Arabia’s powerful crown prince, Mohammed bin Salman.
Since then disagreement around tactics have mounted, with Russia questioning how to eventually exit the deal, as well as harbouring concerns about prices overshooting and triggering a wave of US shale supply.
Riyadh wants prices above $60 a barrel to help bolster the wide-ranging political and economic reforms pushed by Prince Mohammed, who is next in line to the throne.
While many traders believe the threat of lower prices will eventually see Russia back a full extension, there will be lingering questions about its relationship with Riyadh, which is noticeably less warm than six months ago.