Novak, Falih Reaffirm Deal for Million-Barrel Oil Boost

Saudi Arabia and Russia reaffirmed an agreement between OPEC and its allies, which they say will increase oil production by 1 million barrels a day. Their joint announcement came days after US President Donald Trump said he had received assurances from Saudi Arabia that the kingdom could boost output by double that amount. The White House backpedaled from the assertion the same evening, Bloomberg reported.

Energy ministers Khalid Al-Falih and Alexander Novak spoke on the phone and reiterated the terms of the agreement reached last month in Vienna, according to statements from the Saudi and Russian energy ministries.

The Organization of Petroleum Exporting Countries and its partners agreed on June 23 that they have cut output far more than originally intended in a deal struck in 2016 and should restore some supply. The two statements reiterated that this involves an adjustment “equivalent to an additional 1 million barrels a day”.

Russia and Saudi Arabia agreed the process of monitoring supply from the coalition of 24 oil producers needs to be modified to reflect this new objective.

“They are trying to copy central banks, by providing forward guidance to market participants,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.

The two countries’ resolve to pump significant extra volumes is causing friction with some of their partners, most notably Iran, which faces renewed US sanctions on its oil trade.

The terms of the agreement reached last month were ambiguous and Iran insists that individual country limits assigned in 2016 should still apply, curbing the amount of supply producers can add.

Saudi Arabia, under pressure from the US to cool rallying oil prices and fill in potential losses from Iran, is proceeding with an output boost. The kingdom raised production by the most in five years last month, pumping 10.3 million barrels a day, according to a Bloomberg survey.

Trump’s assertion on July 1 that Saudi Arabia was prepared to add as much as 2 million barrels fanned worries over whether the kingdom can produce at that level for a prolonged period. While the International Energy Agency agrees the Saudis can supply 12 million barrels a day, it has not yet been demonstrated. It would also mean them using almost their entire capacity.

The simultaneous statements on Tuesday could be an attempt to quell anxieties that such elevated output levels are planned.

“Currently, the concern about dwindling spare capacity dominates,” said UBS’s Staunovo.