Russia: Saudi Arabia, OPEC Might Cut Oil Production by 5%

The world’s second-largest oil producer Saudi Arabia has proposed that all oil-producing countries, OPEC and non-OPEC countries, cut production by 5 percent in a bid to boost declining oil prices in a sign that the Saudis are feeling the backlash of low oil prices, the Russian government said Thursday.

"Indeed, these parameters were proposed, to cut production by each country by up to 5 percent," Novak said, according to Russian state news agency TASS. Novak stressed it is "too early" to call anything a concrete agreement.

Following the Russian comments, crude oil prices briefly soared 7 percent Thursday, trading as high as US$36.28 a barrel. However, the prices later fell to less than US$35 a barrel.

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Such a decision would be a major reversal for Saudi Arabia who has consistently rejected calls to cut production, a policy that has been a major driver behind the collapse of oil prices from as high as US$115 18 months ago to as low as US$27 a barrel earlier this month.

In late 2014, Saudi Oil Minister Ali al-Naimi told CNN that if non-OPEC countries “want to cut production they are welcome, we are not going to cut," adding that the Saudis would hold that position "forever, not (just) 2015."

ABU DHABI TO BOOST OIL OUTPUT TO 3.5M B/D BY END-2017: ADNOC. Is this the balance that the Saudi guy was talking about?

— zerohedge (@zerohedge) January 28, 201

Saudi Arabia has yet to comment on the proposal but a senior Persian Gulf OPEC official told Reuters that “Gulf OPEC countries and Saudi Arabia are willing to cooperate for any action to stabilize the international oil market."

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However, according to the source, the proposal has not come directly from Saudi Arabia but rather from OPEC members Venezuela and Algeria. Saudi Arabia led a decision by OPEC to increase production in order to fight and compete with a surge in U.S. shale production.

Russia meeting or no, there's enormous reluctance in Saudi Arabia to pull back oil production and cede market share to Iran.

— ian bremmer (@ianbremmer) January 28, 201

Some also say Riyadh’s maneuvering is a bid to put pressure on the economy of its regional non-OPEC rival, Iran. But Iran said last month that it could sustain prices as low as US$20 a barrel.

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If the talks were to lead to any concrete action, it would relieve the economies of many oil-rich nations who had to impose spending cuts to keep up with declining prices.

Saudi Arabia has pressured the currency and opened up a record state budget deficit of around US$100 billion.

In Russia, the world’s biggest producer, the rouble hit an all-time low while in Venezuela and Azerbaijan low prices have taken a severe toll on local economies and caused political shifts.

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More details and concrete decisions on the proposal would become clear in February as Novak added that there might be an emergency OPEC meeting and another meeting between OPEC and non-OPEC countries. "There are lots of questions about the oversight over cuts," he said.

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