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Russia and Saudi Arabia agreement stabilises oil market

Russia and Saudi Arabia oil market

Russia and Saudi Arabia have agreed to take joint action to stabilise the global oil market.

The two nations, which are two of the world's largest oil producers, announced their decision at a news conference at the G20 summit in Hangzhou, China.

Hailed as a "historical moment", the move signifies cooperation between Organization of the Petroleum Exporting Countries (OPEC) - whose members include Saudi Arabia, Iran and Iraq - and non-members Russia.

Under the agreement, Russia and Saudi Arabia will set up a new joint task force to discuss the best ways of bringing more stability to the market, which has seen considerable jumps and falls in prices already this year.

At the start of 2016, the price of oil hit its lowest level for more than a decade. However, the news from the two countries' energy ministers Alexander Novak and Khalid al-Falih, has caused a small recovery.

The agreement from the two nations triggered a five per cent spike in the price of Brent crude and this later stabilised at 1.6 per cent higher than where it had previously stood, with a barrel being worth $47.56. This is still significantly below the $110 barrel price that was recorded two years ago, but suggests that investors are somewhat confident that the market may be heading for a more stable period.

According to a statement released by the pair, the new plan will support the "stability of the oil market" to ensure a steady "level of investment in the long term".

The agreement could involve attempts to limit oil production but for the moment, Mr al-Falih said such a move wasn't "necessary" but would be a "preferred" possibility for the future. Russia's Mr Novak said the nation would be willing to join such a "freeze" on oil output.

Previous talks about similar moves have failed between the two countries, with Saudi Arabia keen to see Iran included in the restrictions. However, when the fellow Opec member - which has been subject of a number of sanctions in recent years - refused to reduce its oil production, discussions came to a close.

Iran is eager to reclaim its portion of the global oil market after restrictions placed upon the nation has hindered its growth.

Mr Novak said he would prefer to set a benchmark for a production freeze based on the output from a month later this year. He explained that Russia would support any month chosen for this purpose and encouraged other countries to get behind the proposal even if it involved a reduction in production.

Russian president Vladimir Putin said he had not given up on the idea of a global oil production cap at the Eastern Economic Forum last month.