Oil Prices Rise over 2% amid Russia and Saudi Arabia Production Freeze Comments

Crude oil was saved on Friday soaring over $1 to trade at 44.22 while Brent oil saw a gain of $1.18 soaring to 46.63. Both benchmarks closed the week with significant losses down by 7% each. However, Monday morning saw volatile trading action despite the US markets on holiday. Crude oil soar 4.37% trading at $46.03 while Brent oil is trading at $48.82 up 4.99%. Comments from Russia that they see no need to attend the OPEC producers meeting later this month as they are now happy with prices seemed to pull the rug out from under the feet of speculators. Oil took a huge hit on Thursday falling over 3.45% in a single session hitting a low of 43.00.

Global and national attitudes toward energy production and control have shifted greatly over the past two years since the Saudi decision to control market share sparked global price wars. Saudi Arabia has recently decided to completely change its economic situation by moving from oil production into investments and putting its oil stake in Aramco up for sale last May. The Saudis announced that Al-Naimi was going to retire and be replaced by Khalid al-Falih, something strange was afoot. The publication of the 2030 vision along with a more bullish tone out of the new energy minister were stark contrasts to Al-Naimi’s tone of “maintaining market share.”

The young Saudi prince, Mohammed Bin Salman Al Saud, is the lead figure behind the brash new 2030 vision, and his entire premise is based on the valuation of Saudi Aramco, the largest oil company in the world. There’s a lot of skepticism with whether an IPO could actually happen and the road bumps along the way would make this one an impressive feat to accomplish. Oil companies are usually valued on a reserve and cash flow basis.

It’s not hard to understand that Saudi Arabia would want oil prices higher when Saudi Aramco is ready to go IPO. The higher oil prices go, the higher the value it gets. There are however kinks now in this outlook. Russia’s oil minister, Alexander Novak, killed the idea of a production freeze, saying “There’s no need for a cap at current oil price.” Russia isn’t afraid of the scenario that oil stays “lower for longer.” For Russia, higher oil prices will always be welcome, but the strong stance indicates economic power.

Over the weekend Russia again made the news but now it seems that they are considering privatizing their national oil company Rosneft. Reuters reported that Russia could fetch over $11 billion in privatizing oil firm Rosneft but needs to guarantee stable tax regime ahead and during the sale, an industry source said citing documents submitted to the Russian government. The world’s biggest energy exporter, Russia is reliant on oil and natural gas for about 40 percent of its budget revenues and battling the longest recession in two decades as crude prices remain below $50 a barrel. Burdened by social spending and military commitments, the government is seeking ways to ease the budgetary pain before parliamentary elections later this year and a presidential vote in 2018.

The documents were submitted this week by Rosneftegas, which owns control in Rosneft on behalf of the government. Italian bank Intesa is advising Rosneftegas on the sale. The Kremlin plans to keep 50 percent plus one share after privatization. Russian economy ministry did not immediately reply for a written request seeking for a comment.

Yesterday Vladimir Putin said he’d like OPEC and Russia, producers of half of the world’s oil, to reach a deal to freeze supply and expects the dispute over Iran’s participation can be resolved.

“From the viewpoint of economic sense and logic, then it would be correct to find some sort of compromise,” Putin said in an interview in Vladivostok. “I am confident that everyone understands that. We believe that this is the right decision for world energy.”

While talks collapsed in April over whether Iran should join in, countries now recognize the nation — freed just months ago from international sanctions — should be allowed to continue raising production, Putin said. The Russian president said he may recommend completing the plan when he meets with Saudi Deputy Crown Prince Mohammed bin Salman at the Group of 20 summit in China next week.

Russia had sounded wary of giving the proposal another chance. Novak said yesterday that no accord is necessary when prices are around $50 a barrel, according to a report by RIA Novosti.