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Is OPEC close to using Petro-Yuan as Russia commences talks with Saudi Arabia?
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June 18, 20157:49 AM MST
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Russian President Vladimir Putin and Saudi leader
Photo by Handout/Getty Images
Within the past 10 days, Russia and China have concluded two historic energy agreements in which both oil and natural gas will now be sold using the Yuan currency. And with Russia beginning oil talks with Saudi Arabia on June 18 during the economic forum currently being held in St. Petersburg, the next step towards lessening the use of the dollar in global energy purchases could very well be underway.
Nine days ago, Russia and China reached a historic milestone as the Petro-Yuan entered into the global economy through a new program instituted by Gazprom Neft, where the third largest oil company in Russia began selling its production solely in RMB, and provided the rest of the global community the chance to purchase oil in a currency other than the U.S. dollar. Yet the significance of this agreement is only half the story as China released new data three days later that showed their reliance upon Saudi oil was waning at the same time their imports from Russia were increasing.
And it appears now that this trend could be what is bringing Saudi Arabia to Russia, since production cuts to raise prices are off the table, and not part of the primary discussions.
[size]The oil ministers of Russia and Saudi Arabia plan to discuss a broad cooperation agreement on Thursday at an economic forum in St Petersburg, two sources told Reuters.
Saudi Arabia is the top producer in the Organization of the Petroleum Exporting Countries and the world's top oil exporter, while Russia, which is not an OPEC member, is the second biggest oil supplier to the global markets.
One source said the agreement to be discussed between Russian Energy Minister Alexander Novak and Saudi Oil Minister Ali al-Naimi would not be about joint oil production or export strategy.
Russia has stepped up contacts with OPEC after oil prices plunged last year, but it has dismissed any suggestion it might cut output to prop up prices. OPEC has also refused to curb its output in order to defend market share. - Moscow Times
China is the world's largest economy, and one of the most important energy consumers for both Russia and Saudi Arabia. And despite the Kingdom's attempts to drive out oil producers in country's such as Iran, Sudan, Russia, and even U.S. shale interests through their increasing of supply, the geo-political moves currently being played are centered more on the petro-dollar than on price or competition.
It may take until the end of this week's economic forum in St. Petersburg to determine the full extent of Russia's talks with Saudi Arabia, but at stake appears to be the future of dollar hegemony over oil. And as pipelines continue to be built that bypass the Middle Eastern Kingdom, and bring both oil and natural gas to Europe through alternative routes such as Turkey and the North Sea, cooperation rather than competition is a vital key to creating energy policies that will benefit both producers in the future.[/size]