Briefly, ever so briefly, international oil prices rose sharply on the morning of Monday, Sept. 5.
The short-lived surge in petroleum costs — which at one point raised the price by as much as 5 percent — was not a quirk or even a financial hiccup.
And it was not a consequence of a weak U.S. dollar (although that reality certainly factored mildly into the equation).
The ephemeral uptick was a response to a flawed oil cooperation agreement between Saudi Arabia and Russia that was ironed out during the final hours of the G-20 summit of global economic powers in Hangzhou, China, over the weekend.
The agreement, which lasted all of about three hours, provided for Saudi Arabia — the largest oil producer within the Organization of Petroleum Exporting Countries (OPEC) — and Russia — the largest non-OPEC producer — to work together to help reinstate the value of the liquid hydrocarbon at $80 to $100 a barrel.
What it did not do, however, was to provide for a cap on production, which is the only realistic means of curbing the current glut and restoring traditional prices.
Both the Saudi Arabian and Russian economies are highly dependent on oil, and both economies have felt the pinch since the Brent crude benchmark price began to plummet in 2014.
Consequently, it would seem that it would behoove the world’s two largest oil producers to reach a bargain that would benefit both of their pocketbooks.
Ah, but there’s the rub.
The truth is that neither Saudi King Salman bin Abdulaziz nor Russian President Vladimir Putin are all that concerned about their nation’s economies (although perhaps they should be, since economic turndowns are often followed by social upheavals).
Both Salman and Putin view the price of oil as a political tool, a means of maneuvering themselves into larger seats at the international negotiating table, especially regarding Middle Eastern affairs.
Saudi Arabia — which masterminded the fall in oil prices in the first place — devised the glut as a means of putting economic pressure on its lifelong archenemy Iran to stop backing the Bashar al-Assad regime in Syria and to butt out of Iraq, where Salman has Wahhabi ambitions to expand his Sunni territory.
Putin, on the other hand, has been supporting Tehran and the Assad government in Damascus, and is not willing to cave on his regional political intentions just to pad his country’s national budget, at least not for now.
End result: a stalemate.
There is still hope that Saudi Arabia and Russia will come to some sort of a bargain when the the subject of an oil output freeze is once again broached in Algiers later this month during informal OPEC talks slated to begin on Sept. 26.
But if that does not happen, there is little chance that crude prices will budge significantly in the next 12 months.
Unless, of course, someone finally blinks in this costly petroleum standoff.
Thérèse Margolis can be reached at [email protected].
