Russian embrace of OPEC+ is about both the oil price and Russian power. Collaborating with OPEC members has brought Russia much success in terms of its ability to insert itself as a regional powerbroker and otherwise expand its influence in the Middle East. This secondary goal decreases the likelihood of Russia breaking with the Saudis in coordinating production policy anytime soon.
As predicted in our Global Crude Oil Outlook last week, both the G20 and OPEC meetings delivered results that are pertinent to the global oil balance. We expect crude oil prices to rise in 2019 as the global balance moves into deficit. The outlook for 2020 is not as rosy. The extension of the OPEC deal by 9 months is helpful, but the difficulties will really come later in 2020.
Hellenic Shipping News: Weak demand and soft crude oil prices mean that early next week the OPEC+ countries should extend their production restraint another six months. They will be rewarded with higher crude oil prices (unless the trade dispute significantly worsens, or further chaos comes out of the G20 meeting). It would be in the best interests of the group to extend this production restraint again in six months, as the call on OPEC falls further in 2020. But it will be harder to do so because, ceteris paribus, oil prices will be higher, and some of the current overcompliance will be gone, and some undercompliance will have set in. That does not bode well for agreeing to another extension. This will eventually put downward pressure on prices, even with the distillate demand requirements that accompany the IMO.
Although diesel production in Asia Pacific will grow by only 60,000 b/d this year, higher diesel yields driven by IMO sulfur rules have already emerged in Japan and South Korea. This, together with a ramp up of new refineries in Southeast Asia and a potential recovery in China, will boost regional diesel output by 260,000 b/d to 10 million b/d in 2020.