Saudi Arabia and Russia are the world's most influential oil producers right now, along with the U.S., but the kingdom appears to be going its own way, announcing half a million barrel output cut from December.
With a lot at stake for the oil producers, however, the relationship should remain close, according to oil market expert Daniel Yergin.
"I think it's intended to be a long-term relationship and it started off about oil prices but you see it taking on other dimensions, for instance, Saudi investment in Russian LNG (liquefied natural gas) and Russian investment in Saudi Arabia and I think this is a strategic relationship because it's useful to both countries," IHS Markit vice chairman Dan Yergin told CNBC on Monday.
While Saudi Arabia and Russia are close, particularly given their pact in late 2016, along with other OPEC and non-OPEC producers to curb output by 1.8 million barrels per day in order to support prices, oil markets have changed since that deal - and largely thanks to that deal.
Oil prices have recovered almost too well with the U.S. criticizing OPEC (of which Saudi Arabia is the de facto leader) for higher prices and markets have been fluctuating on concerns over both a potential decline in supply (due to U.S. sanctions on Iran) and a potential oversupply – due to an increase in production from Saudi Arabia, Russia and the U.S. in recent weeks --- that led prices to fall around 20 percent since early October.
On that note, Saudi Arabia pumped 10.7 million barrels per day in October, Russia pumped 11.4 million barrels per day and the U.S. also an estimated 11.4 million bpd.
Yergin told CNBC's these "big three" producers were changing the face of the global oil market. "It's the big three, it's Saudi Arabia, Russia and the U.S., this is a different configuration in the oil market than the traditional OPEC-non-OPEC (one) and so thinking is having to adjust so there's that new relationship … and the world is having to adjust."
Also speaking to CNBC Monday, BP Group Chief Executive Bob Dudley said that the "OPEC-plus agreement (between OPEC and non-OPEC producers including Russia) and coalition is a lot stronger than people speculate. I think Russia doesn't have the ability to turn on and off big fields (which) can happen in the Middle East ... But I fully expect there to be coordination to try to keep the oil price within a certain fairway," he said.
On Monday, markets are rallying because Saudi Arabia announced unilaterally on Sunday that it is going to cut production by 500,000 barrels a day in December. It cited uncertain global oil growth and associated oil demand in 2019 as a rationale for its decision, as well as waivers granted on U.S. sanctions on Iran as reasons not to fear a decline in supply.
On Sunday, the kingdom's oil minister reiterated Saudi Arabia's belief that the market is well-supplied. "Once again we've been proven to be correct," Oil Minister Khalid Al-Falih said Sunday, "the market is quite adequately supplied as I have been saying since the days in June in Vienna (where OPEC last met). There is no reason for the fear that was gripping the market and the tightness that was prevailing was not a physical tightness, it was an emotional overreaction."
He said recent price moves higher ahead of Iranian sanctions were an "over-reaction," as was the drop lower when those concerns failed to materialize and market participants feared an over-supply.
"Market gets it wrong occasionally as they did a few weeks ago on one side and they're doing it again on the other today, but ultimately the pendulum will swing to a reasonable middle," Al-Falih told CNBC's Steve Sedgwick at the ADIPEC oil summit in Abu Dhabi. He added that Saudi Arabia would continue to work hard to balance oil markets.
In a sign that Russia and Saudi Arabia might not be on the same page, Russia's Oil Minister Alexander Novak agreed that concerns about Iran's supply had been overdone but said it was too soon to take barrels off the table, noting that there was a lot of volatility in the oil market.
"If such a decision is necessary for the market and all the countries are in agreement, I think that Russia will undoubtedly play a part in this. But it's early to talk about this now, we need to look at this question very carefully," Novak told CNBC's Steve Sedgwick on Sunday.