Oil rose to its highest level in a year after Russian president Vladimir Putin said that he backed efforts for a production cap in the clearest sign yet that the country would join any global supply pact.
Speaking at an energy conference in Istanbul, Mr Putin said he hoped that the Opec producers’ group would agree on output curbs for member nations at its next ministerial meeting in November.
Opec countries reached an agreement in Algiers last month to curb production but details for a binding deal to reduce supply — the first since the financial crisis — still need to be finalised.
It was understood that should Opec come to a consensus, non-Opec producers such as Russia would also be asked to join any co-ordinated supply curbs to stem the two-year price slide.
The drop in prices by more than half since mid-2014 had triggered the longest period of investment decline in 45 years, Mr Putin said. The threat of “unpredictable jumps” in prices loomed, he said, from future production shortages.
“That’s why in the current situation we think that [an oil output] freeze or even an oil production cut is likely to be the only right decision to maintain the stability of the global energy sector,” Mr Putin said.
“Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join,” Mr Putin added, according to Reuters. It is not clear at what level it would freeze or cut its output.
Brent crude, the international benchmark, increased as much as 3.5 per cent to $53.73 a barrel after Mr Putin’s remarks, the highest since October 2015. West Texas Intermediate, the US marker, rose 3.6 per cent to the June high of $51.60.
Khalid Al Falih, Saudi Arabia’s energy minister, set in motion an oil rally earlier in the day after he said that he was optimistic that a deal would be struck.
He warned, however, that any output curbs should not be too severe. “Opec needs to make sure we don’t crimp too tightly and create a shock to the market,” he said.
The group last month agreed to cut production to between 32.5m and 33m barrels a day, marking the first Opec call for action since the protracted oil downturn. Opec’s current output stands at more than 33.5m b/d.
Big hurdles remain to achieving a deal, however, including the critical issue of how any cut to production would be split between Opec’s member countries. While Iran is emerging from sanctions and has agreed to cap its output, the level has not been agreed on. Iraq has only just pushed for an increase in production.
Russian backing will probably give any deal further support. Mr Falih will be meeting with his Russian counterpart in Istanbul, but no deal is expected this week, Opec delegates say.
Russian oil output has increased to more than 11.1m b/d, a new post-Soviet record-high, while Saudi Arabia, Opec’s de facto leader and largest producer, has hit a record level in excess of 10.6m b/d.
The 15 per cent rise in oil prices since the Algiers meeting will be welcomed as Saudi Arabia seeks to promote its creditworthiness to investors during a roadshow for a long-anticipated debut international bond, which starts in London this Wednesday.
The world’s biggest oil exporter is expected to raise as much as $15bn in the sale of dollar-denominated debt, which will pave the way for other deals including the largest initial public offering of all time by state oil producer Saudi Aramco.
On Monday, Citi, HSBC and JPMorgan were announced as joint-lead managers of the sale, with Bank of China, BNP Paribas, Deutsche Bank, Goldman Sachs, Morgan Stanley, Mitsubishi UFJ, and NCB Capital also hired.
Additional reporting by Elaine Moore
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