The three-year slide of oil prices has delivered a major hit to the financial stature of Saudi Arabia, primarily because of their status as the world’s top oil producer. While that title has seemingly fluctuated in the past year with Russia, the economic punch that those two nations provide has the ability to provide an effective counter-punch.
That became evident on May 15, when both the Saudis and Russians agreed to extend the reduction in oil production through March of next year. The original agreement in January between those two nations and 24 other countries for a six-month period was seen as an increasing desperate attempt to jump-start the stagnant oil market that’s seen prices cut in half since the middle of 2014.
The goal of the production cut was to reduce the oil inventories to the five-year average, which Khalid Al-Falih of Saudi Arabia admitted will be impossible to reach within the original time frame. With nine extra months now in place, the likelihood of such a scenario becomes much more possible.
Despite the fact that the immediate impact of the news helped oil prices increase by more than one percent, a Saudi oil company that’s still continuing to struggle is PetroRabigh. They announced the day before the Saudi-Russian agreement that their quarterly loss had gotten worse than previously expected. As a result, the company’s stock dropped 10 percent, followed by six percent the next day.
The agreement between Saudi Arabia and Russia comes 10 days before a meeting of the other countries that agreed to the original production cut. The influence of both nations is expected to make assent as close to unanimous as possible. The reason for any uncertainty is because of the continuing reluctance of Iran to effectively stand by the plan.