Russian President Vladimir Putin’s visit to Saudi Arabia and the UAE has coincided with a significant drawdown in energy prices that could threaten Moscow’s need to drastically increase income from its oil & gas businesses to pay for a massive jump in next year’s fiscal budget. Putin has rarely left the safety of Russia and its CSTO ally nations since he initiated a formal invasion of Ukraine in February 2022, suggesting the set of meetings with Gulf State leaders was of very high importance.
Putin will also host Iran’s head of state in Moscow today, another major energy-producing nation that has grown closer with Russia in recent years. The timing of Putin’s diplomatic foray suggests further, more dramatic action – in addition to oil output cuts already undertaken by OPEC+ – could be on the table. Russia’s war effort and Saudi Arabia’s ongoing economic transformation rely on income derived from the energy trade but, as prices slip lower, those endeavors become more difficult to support financially.
Related ETFs: Invesco DB Oil Fund (DBO), Energy Select Sector SPDR Fund (XLE)
On the same day that Brent crude oil and NYMEX natural gas futures dipped to their lowest levels since June, Russian President Vladimir Putin embarked on a set of whirlwind “working visits” to the UAE and Saudi Arabia – flanked by four Su-35S fighter jets. Each of these countries, including Russia, are among the top global producers of these key fuels. Just a week after Russia once again partnered with OPEC (as part of the OPEC+ syndicate that pumps more than 40% of the world’s oil) to expand existing output curbs on crude oil, it appears that these efforts have fallen flat in their attempt to revive prices that have now been slashed by nearly a quarter from 2023 highs near $98.00 per barrel.
OPEC+ has already taken 5.16 million barrels per day (bpd) off the market since 2022, more recently announcing further cuts worth 2.2 million bpd on behalf of eight producers in Q1 2024. Part of that cut would be formed by an extension of Saudi Arabia’s voluntary output reduction of 1.0 million barrels, previously set to conclude at the end of this year. Russia deepened its own voluntary cuts to 500,000 bpd through the end of the first quarter as well. Traders apparently doubt the efficacy of these cuts, as oil prices appeared non-responsive to OPEC+’s announcement and continued their…
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