Russian-Saudi oil deal positive sign: Expert

Press TV has interviewed Manouchehr Takin, an international oil and energy consultant from London, to further discuss the world's two largest oil producers, Russia and Saudi Arabia, agreeing on steps to stabilize global oil output.

Press TV: Is this agreement, unofficial agreement at least, between Russia and Saudi Arabia the end of the woes of the global oil market?

Takin: It is a positive sign. Let's not ignore that - the fact that the two sides have made a statement and they have called it an agreement. But as you saw from the reaction by the market, the news about the pending agreement made the price go up because the expectations were too high. But later on, when the actual statement was read and the comments were made by the two sides, the market realized that this is not imminent.

They have acknowledged that there is excess oil in the market and that the producers, the two biggest - Saudi Arabia and Russia - should reduce their production. But they said they [plan to] freeze their production. So when you go to the nitty-gritty, and the details, this is not really a solution. Because there is too much oil. Both sides should lower their production and hopefully have other producers within OPEC and outside OPEC also join in. And that is a very high expectation.

So, it is a positive sign. But they are mentioning that in the next few months, they would have committees’ experts to study the market, make analyses and come up with recommendations. They would meet in September, October, November and so on. So it is a long way. And looking at the past meetings between OPEC and non-OPEC [members] … two years ago, in November 2014, the Russian, Saudi, Venezuelan and Mexican ministers met in Vienna. And the Russians said, "No, we can't join. This is only an OPEC affair."

Now that they are joining in and acknowledging that they have to do something, it is a positive thing. But looking at [the talks] two years ago, and [even] going back to the 1990s, again there Russia’s involvement. [There] was not much reduction of supply from Russia. But again psychologically, it has an impact on the price of oil and there is hope that it will actually get action.

Press TV: Looking at the situation right now, countries like Saudi Arabia and Venezuela are economically hurting because of the global oil price slump. So do you think they might add some urgency towards coming up with a viable solution?

Takin: Of course, they are under pressure. Saudi Arabia [had] reserves of about 750 billion dollars two years ago. They are now less than 600. Saudi Arabia has been borrowing money directly within the country, issuing bonds, borrowing money form international markets. So [even] the Saudis who are the richest are in financial trouble. And the same, of course [even] worse, [apples to] Nigeria, Venezuela and others.

Those countries have been putting pressure on Saudis for the last two years and the Saudis are also feeling the pressure. [There has been] political change within Saudi Arabia [with] the second crown prince coming in and so on. He made some gestures in the last meeting in Doha. There was supposed to be an agreement and he disagreed and stopped it.

So, there is a bit of domestic politics from the Saudi side. But I think Saudis are beginning to realize that they can't go on to be stubborn as such and they are becoming lenient. But even in this agreement two days ago, the Saudi minister said "the market is balanced and the price is reasonable," as if he were not going to take part in any reduction of supply. So we have to wait and see. It's a good sign. But in practice, it would be many months before it materializes in [the form of] actual balance or reduction of supply.

Press TV’s website can also be accessed at the following alternate addresses:

www.presstv.co.uk