It’s been nearly three years since the world’s top oil exporter and OPEC’s de facto leader Saudi Arabia forged an alliance with Russia to start managing oil supply with the hope of rebalancing the market and ensuring, in their words, market stability, in other words—higher oil prices.

While they have managed to put a floor under oil prices, the allies in the OPEC+ deal have failed to materially move prices higher. With fears of demand faltering, the leaders of the pact—Saudi Arabia and Russia—face a tough test ahead. Should they deepen the cuts and lose additional market share, (mostly) to U.S. oil? Or should they just stay put and wait for the storm to pass, jawboning the market about ‘stability’ in the meantime?

On top of these questions, the leaders of the OPEC+ coalition are now facing another force on the oil market—increased unpredictability in geopolitics, as the attacks on vital Saudi oil infrastructure that knocked 5 percent of global oil supply offline for a few weeks showed.

Despite the ongoing production cuts from the OPEC+ alliance, and despite the worst disruption of oil supply in history, oil prices not only haven’t moved significantly higher, they are now even lower than they were on the day just before the attacks. On September 13, Brent Crude prices closed at $60.22 a barrel. On October 2, Brent Crude closed at $57.75 per barrel, after the Saudis were busy reassuring the market over the past weeks that the affected capacity has been restored and not a single oil shipment to customers would be skipped.

Sure, the Saudi reassurances have played a significant role in weighing on oil prices after they had spiked the most on record on the day after the attacks. But lingering concerns about flagging global oil demand growth and weakening economies returned with a vengeance on the market and sent oil prices lower than they were just before the attacks.

Oil prices had just had their worst quarter this year, the worst three-month performance since Q4 2018 when prices crashed by 40 percent after the U.S. granted six-month waivers to the eight largest Iranian oil buyers.

In Q3, concerns about demand trumped geopolitics and the fact that U.S. sanctions on Iran and Venezuela further tightened and cut off some more oil supply to the market, in addition to the cuts by the OPEC+ group.

And one question started to weave its way to the top of analysts’ minds: are those cuts enough?

“I think they will want to plow ahead of keeping OPEC+ cuts in place and will start using concerns about the global economy and trade war to stay the course,” Joe McMonigle, Senior Energy Advisor with Hedgeye Risk Management, told Bloomberg.

The International Energy Agency (IEA) and many other organizations and analysts, including OPEC, have trimmed their oil demand growth estimates several times this year already, on the back of signs of slowing economic growth in the world, also due to the U.S.-China trade spat. Related: Don’t Expect Oil Prices To Go Much Higher This Year

If the pace of global economy deteriorates further, the IEA could revise down again its oil demand growth expectations for this year and next, its executive director Fatih Birol said last week.

Russia’s Energy Minister Alexander Novak also sees global oil demand growth slowing this year on the back of the trade disputes, and expects that growth could be just 1 million barrels per day. Yet, expectations are that as early as in 2020, demand growth will accelerate to 1.4 million bpd, Novak hopes.

Russia and Saudi Arabia need to continue their cooperation, including in stabilizing the oil market, Novak said during a meeting with Saudi Energy Minister Abdulaziz bin Salman on the sidelines of the Russian Energy Week Forum in Moscow on Wednesday.

The Russian minister, however, warned that black swans—extreme and highly unpredictable events with severe impacts—are ‘flying around’ the oil market, making forecasting even more difficult. Related: China’s Renewable Boom Hits The Wall

At the energy forum this week, Russia’s President Vladimir Putin also commented on the OPEC+ alliance and said that “Russia remains a responsible party to the OPEC+ deal. We are convinced that cooperation will continue to develop.”

At a meeting with OPEC Secretary-General Mohammad Barkindo, at which Novak was also present, Putin said that “The recent attack on oil facilities in Saudi Arabia certainly triggered a hike in oil prices, but I was sure that everything would return to today’s indicators because there are no serious grounds for fundamental market fluctuations. They do not exist partly owing to our common efforts to stabilise the world market.”

But with slowing oil demand growth and economies, Saudi Arabia and Russia may have to not only continue cooperation, but also make it more flexible to mitigate a potentially devastating effect of a ‘black swan’ event on the oil market.

By Tsvetana Paraskova for Oilprice.com

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