By Barani Krishnan
Investing.com - Sometimes the best ally can only be a little better than the enemy. Saudi Energy Minister Khalid Falih is finding that out about his Russian counterpart Alexander Novak.
Months after sticking together through thick and thin, with their leaders, Crown Prince Mohammed bin Salman and President Vladimir Putin, even high-fiving each other in Davos, Falih and Novak had quite different messages to impart at the weekend OPEC+ meeting in Jeddah, and the market isn't quite sure what to take away from that.
West Texas Intermediate futures, the benchmark for U.S. crude, settled up 34 cents, or 0.5%, at $63.10 per barrel.
London Brent futures, the global benchmark for oil, were down by 15 cents, or 0.2%, at $72.06 by 3:23 PM ET (19:23 GMT).
But WTI and Brent were very much higher at the start of Monday's session in Asia. The U.S. benchmark rose as much as $1.04 and its U.K. peer $1.20, reacting to tough talk by Falih on Sunday. The Saudi energy minister indicated the kingdom will continue cutting output through the year-end at levels above compliance agreed by OPEC+. He also expressed hope that his other colleagues in the alliance would do the same.
Falih's most trusted colleague in the room, Novak, did fall in line, agreeing that it was too soon to even talk about ending production cuts that had been on for six months now. But the Russian energy minister also said more, a lot more than Falih possibly liked.
Oil prices initially jumped on the carefully-coordinated Saudi-Russian speeches to the press. But they came off those highs as the market digested comments Novak made later in an interview with Bloomberg TV.
OPEC+ may need "to tweak" the current production deal when it meets next month, Novak said in that interview. One option on the table is "removing the over-compliance" with current targets, Novak said, a move that would effectively ease output cuts in the second half of the year.
Bloomberg built out that interview into a news story that read like a semi-opinion piece, which asserted that Putin might want a say in OPEC+ policy as well. At last year’s annual St. Petersburg International Economic Forum (SPIEF) in June, Putin said Russia "wasn’t interested in an endless rise in the price of energy and oil," Bloomberg reminded readers.
The 2019 edition of SPIEF is scheduled for June 6-8, and, again, the Russians appear happy with an oil price somewhat lower than the Saudis prefer. Moscow can live with $60 a barrel, while Riyadh struggles with anything less than $80, Bloomberg said.
Bloomberg added that Russia has merely cut as required, meeting its official target only this month. So, removing the over-compliance will mean Moscow stays exactly where it is today. The powerful Russian oil industry, led by Kremlin power broker and Rosneft PJSC Chief Executive Officer Igor Sechin, wants to be able to boost output.
"The oil market is once again trying to balance the risks to supply versus the risks to demand," said Phil Flynn, senior energy analyst at The Price Futures Group in Chicago.
Oil was also pulled down as stocks on Wall Street fell on heightened fears for the tech sector due to the White House’s blacklisting of Chinese telecom giant Huawei. Google's (NASDAQ:GOOGL) decision to discontinue licensing for Huawei was a major factor for the drop in the Nasdaq Composite.
After a resurgent first-quarter gain of more than 30% and an impressive April, crude prices have struggled to advance since the start of May.
Oil bulls have benefited somewhat in the past week, however, from a spike in geopolitical tensions as the Saudis accused Iran, who are under U.S. sanctions, of sabotage to the kingdom's oil infrastructure.
But some analysts warn that even geopolitical gains had their limits.
"I am a general skeptic, however, on prices up here as I think that this is more of a curve trade than a flat price as the geopolitics are likely more hype than anything," said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C. "I also think that the market is not very short and any large scale rally out (of) the range requires that."