(Bloomberg) -- Come for the football, stay for the oil diplomacy.
Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman will discuss how to boost oil production while maintaining their petro-alliance when they meet in Moscow on Thursday to watch the soccer World Cup’s opening match between the two countries.
The world’s largest oil exporters are negotiating how to rework their unprecedented, and successful, deal to control oil production as U.S. sanctions on Iran and the collapse of the Venezuelan petroleum industry threaten to send crude skyrocketing. They must also contend with President Donald Trump, who used his Twitter account on Wednesday to attack OPEC for artificially inflating prices.
"This is the most political OPEC meeting in a long time," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.
Both Saudi Arabia and Russia have proposed plans for the so-called OPEC+ group that would add as much as 1 million barrels a day, about 1 percent of global output, although Riyadh prefers a smaller increase. The back and forth signals major differences remain, even between Riyadh and Moscow, who’ve worked very closely over the past two years.
The two countries share a common view that production should increase gradually, but the precise volume of oil that could be returned to the market and the timing of the boost are still under discussion, Russian Energy Minister Alexander Novak said in an interview in Moscow on Thursday.
Novak had talks with his Saudi counterpart Khalid Al-Falih late on Wednesday and the two will meet again on Thursday. Reaching a mutual understanding may prove easier than obtaining a wider agreement among the 24 countries bound by the agreement first struck in late 2016. The Organization of Petroleum Exporting Countries meets in Vienna on June 22 and Iran, Venezuela and Iraq have publicly set themselves against a production increase.
"An output increase by the four main producers (Kuwait, Russia, Saudi Arabia, and UAE) looks inevitable," Ed Morse, head of commodities research at Citigroup Inc. in New York, said in a note to clients. But less than 10 days before the meeting the size and timing of any increases was still up in the air, he said.
Tehran illustrated the divide within the cartel on Wednesday when a senior official said that current production levels were adequate and the group shouldn’t bow to U.S. pressure.
“The Trump administration is trying to intervene in the affairs of a sovereign organization,” Iran’s OPEC governor, Hossein Kazempour Ardebili, said in an interview. Such attempts have failed in the past and “they will also fail” this time.
Russia and Saudi Arabia forged their unlikely alliance in 2016 after face-to-face meetings between Putin and Mohammed bin Salman. The diplomatic opening paved the way for Moscow to join OPEC in cutting production for the first time in more than a decade, with 24 countries agreeing to curb output by 1.8 million barrels a day in order to eliminate a supply glut that was weighing on prices.
Since then, prices have rallied close to $80 a barrel. Saudi minister Al-Falih and his Russian counterpart Novak have struck up a close working relationship, speaking regularly by phone and making several joint media appearances.
Brent oil futures traded at $76.50 in London on Thursday morning.
Many nations have gone further than their pledged cuts. Saudi Arabia said it was cutting deeper to lead by example. Others, notably Venezuela, have experienced involuntary declines in production due to problems in their oil industries. In May, the group’s total reduction added up to almost 2.2 million barrels a day, according to the International Energy Agency.
On Wednesday, the IEA said combined output from Venezuela and Iran could fall a further 30 percent next year due to U.S. sanctions and economic upheaval. That’s one reason the U.S. is putting diplomatic pressure on Saudi Arabia and other OPEC members to increase production, hopefully pushing down gasoline prices, before the U.S. votes in midterm elections that could decide which party controls Congress.
"Oil prices are too high, OPEC is at it again. Not good!,” the president tweeted on Wednesday morning.
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