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Russia Saudi pact

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By Ed Crooks: February 19, 2016

This week the story of the oil price crash took a genuinely unexpected turn with the conditional agreement from Saudi Arabia and Russia that they would not increase their production, provided other countries made the same commitment. It was the first real co-operation between Opec and non-Opec countries for 15 years, and although its true significance is probably rather less than that makes it sound, the pact nevertheless provided grist for extensive interpretation.

The FT suggested that the deal between the two countries, which are strategic and economic rivals, showed how the financial squeeze from $30 oil was hurting them both. It also provided a quick explainer on the agreement. The deal was particularly noteworthy because tensions between Saudi Arabia and Russia over Syria have been mounting.

For Reuters, John Kemp said the agreement reached in Doha could be seen as a “stepping stone towards a more ambitious and comprehensive deal in a few months’ time.” He also highlighted an analysis from Petroleum Argus, quoting Saudi officials suggesting that they saw the announced freeze as a trust-building exercise, which could lead to stronger co-ordinated action later.

At Bloomberg Gadfly, Liam Denning pointed out that “The proposed big freeze does nothing immediately to lift the pressure that is pushing prices down.” The FT argued in an editorial comment that, weak as it was, the Saudi-Russian agreement was probably the strongest deal that was available to them, because attempts to raise the price by cutting output would end up boosting US shale production.

The two key countries that Saudi Arabia and Russia would hope to draw into their pact, Iran and Iraq, delivered polite views of the proposal, without committing to anything.

Away from oil, the ramifications of climate policies after the Paris accord are still generating most of the news. The MIT Technology Review speculated about the consequences of the death of Supreme Court justice Antonin Scalia for President Obama’s Clean Power Plan, while Wired magazine suggested that the plan still did not have “a high probability of succeeding in court.”

The impact of Germany’s renewable energy policies on its utilities was starkly illustrated by RWE, one of the country’s largest, which this week scrapped its dividend payment. Wholesale electricity prices in Germany have fallen to their lowest since 2002.

And finally, we are trying out a new feature in which I answer readers’ questions on video. Drop us a line at [email protected] if there is anything you’d like to ask, and I will answer as many as I can in the week of February 29.

Quote of the week

“The reason we agree to a potential freeze of production is simply, it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilise and improve the market” – Ali al-Naimi, oil minister of Saudi Arabia

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