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OPEC reportedly seeking formal pact with Russia

Saudi energy minister with Russian energy minister
Saudi Energy Minister Khaled al-Faleh (L) and Russian Energy Minister Alexander Novak attend a meeting of OPEC and non-OPEC members. Photo: Amer Hilabi/AFP via Getty Images

OPEC is seeking to formalize its market management partnership with Russia and other producers, a proposal slated for discussion later this month in Vienna, The Wall Street Journal reports.

Why it matters: Plans to transform their existing, roughly 2-year-old oil supply management effort into something more durable signals how the U.S. production surge has upended oil markets and geopolitics.

  • Most recently, OPEC, Russia and allied producers agreed in December to jointly curb output by a combined 1.2 million barrels per day for the first 6 months of 2019.

The details: The WSJ, citing an unnamed OPEC official, reports that "under the current draft document, the alliance could last up to three years and wouldn’t be legally binding."

The intrigue: Proposals to turn the loose partnership often called OPEC+ into a more institutional arrangement have been a moving target for a while. In December, Russian energy chief Alexander Novak said it’s unlikely Russia and OPEC will create a formal, institutional structure.

The big picture: The U.S.' return to the ranks of global oil behemoths in recent years has prompted OPEC and Russia to cooperate in an effort to bolster prices.

  • As the WSJ notes, the Saudis in particular need prices above $80-per-barrel to balance their budget (right now Brent crude is trading around $62).
  • The U.S. is now the world's largest producer, with output closing in on 12 million barrels per day.

What's next: Per the WSJ, OPEC members and will meet with Russia and other non-OPEC producers to debate the idea in Vienna in 2 weeks, and hope to agree to a final deal in April.