(Repeats earlier story with no change to text. The opinions
expressed here are those of the author, a columnist for
By Clyde Russell
SINGAPORE, Sept 6 It's difficult to be anything
other than cynical about Saudi Arabia and Russia saying they
will work together in global oil markets through a
newly-announced joint taskforce.
While Monday's media release boosted the price of crude oil
as once again traders reacted to the latest moves in the ongoing
soap opera of will they or won't freeze output, the news was
short of any real substance.
There was no commitment to the much-vaunted freeze on
output, with Saudi Energy Minister Khalid al-Falih stating they
are in no hurry to limit output, although it is a possibility
for the future.
But let's take matters at face value and ask the question as
to what a Saudi-Russian task force is likely to discover as they
monitor and report on the current and likely state of the global
In truth, they probably don't need a task force to tell
them, as they already know, that if global oil prices do rise,
it won't be long until output from swing producers such as U.S.
shale drillers starts to flow back into the market.
In fact, it's likely that even at the current Brent price
of around $47.67 a barrel, oil from the United States
and Canada is competitive in China, the world's second-biggest
New assessments from price reporting agency Argus Media show
that West Texas Intermediate (WTI) from the U.S. Gulf coast and
Western Canadian heavy oil delivered to China on a cost and
freight basis is already competitive.
Alejandro Barbajosa, Argus vice president for Middle East
and Asia-Pacific crude, said that the end of the U.S. ban on
crude exports has opened up the potential for more oil to flow
eastwards from the Gulf to Asian markets.
WTI shipped from Houston to China is already cheaper on a
delivered basis than some competing grades of light, sweet oil
from West Africa and Southeast Asia, Barbajosa told the Argus
crude forum in Singapore on Monday.
Likewise, Western Canadian Select, a heavy crude grade, is
similarly competitive at current prices against Middle East
crudes such as Basra Heavy from Iraq and cargoes from Latin
America when delivered to China, Barbajosa said.
While this doesn't mean that Asia is about to be swamped
with U.S. light and Canadian heavy oil, it does give refiners an
option to diversify supply.
This is especially important if their usual suppliers, such
as Saudi Arabia and the other Middle Eastern producers as well
as Russia, do finally manage to limit production, or even cut
back on shipments to Asian customers.
If crude that doesn't usually flow to Asia is viable at
current prices, it will only be even more competitive if the oil
price does rise to somewhere closer to $60 a barrel, a level
that the major oil producers would no doubt like to see.
Effectively, major oil exporters such as Saudi Arabia and
Russia are caught between a rock and a hard place.
If they can engineer a price rise by limiting output, it
will merely serve to bring back idled production, as well as
tempting producers outside any agreement to ramp up their
This would cap any rally, and possibly send oil back to the
recent lows under $30 a barrel as more crude reached global
It would also put the large producers back into an unwanted
market share war, whereby they have to choose between selling
less oil at higher prices, or keeping market share but accepting
Ultimately what the Saudis, the Russians and the other big
exporters want is an oil price that keeps the most marginal
production out of the market, but high enough to relieve the
stress on their fiscal positions.
That sweet spot is probably around $55 a barrel, but getting
to that price point and staying there is not going to be an easy
That's why the present machinations of meetings, statements,
rumours and speculation are likely to continue for some time as
the producers try to engineer a price and then keep it there.
(Editing by Christian Schmollinger)