Russia, Saudi Arabia pledge to continue OPEC+ oil market coordination

Russia and Saudi Arabia, the co-leaders of the OPEC+ alliance, reaffirmed their commitment to the oil producer group on March 3, a day after it decided not to deviate from its plan for a limited output increase despite growing market disruptions from the invasion of Ukraine.

In a phone call between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, "it was stated with satisfaction that the OPEC+ member countries are consistently fulfilling their obligations, contributing to ensuring stability in the world oil market," the Kremlin said in a statement.

"Russia and Saudi Arabia will continue to coordinate their approaches within this format," the statement added.

The official Saudi Press Agency, in its readout of the call, said the crown prince urged a political solution to the Ukraine crisis and "reiterated the kingdom's keenness to maintain the balance and stability of oil markets, noting the role of the OPEC+ agreement in this and the importance of maintaining it."

OPEC and its partners, including Russia, agreed March 2 on a modest 400,000 b/d output increase for April, rebuffing calls for a more aggressive hike to combat expected disruptions from the Ukraine conflict.

Western countries have levied a raft of sanctions against Russian banks and other entities, without directly targeting its oil and gas flows, but traders have largely begun to halt transactions involving Russian commodities.

The escalating conflict sent front-month Brent futures to nine-year highs of almost $120/b in intraday trading March 3, before a pullback to $112.70/b as of 1635 GMT.

Politicizing energy

Despite Western pressure, OPEC+ countries, which collectively control about half of global oil production, have largely stood by Russia, keen to preserve the group's oil market hegemony after more than five years of cooperation on output cuts, rather than launch an internal market share battle.

The group has disputed that the market is experiencing a supply shortage, attributing the current price surge to geopolitics.

In the Kremlin statement, Putin denounced the sanctions and "emphasized the inadmissibility of politicizing issues of global energy supply."

Even with approval of the 400,000 b/d production increase, the actual boost in output is likely to be far less, as many OPEC+ members are struggling with internal disruptions and declining mature fields.

Of the 23-country alliance, only Saudi Arabia and the UAE hold any significant spare production capacity, though both countries have so far been unwilling to breach their quotas.

The production shortfalls contributed to a tightening market even before Russia launched the invasion.

The International Energy Agency, representing oil consuming countries, criticized the OPEC+ decision, with Executive Director Fatih Birol calling it "disappointing."

Birol, who had previously called on OPEC+ countries to "narrow the gap" between their production targets and their actual output, also said the IEA stood ready for further potential oil stock releases, beyond the "initial" discharge of 60 million barrels announced March 1, half of which will come from the US Strategic Petroleum Reserve.