The razor-thin chance OPEC will curtail its crude production to quash the oil-market slump hinges on an improbable alliance between the group's top exporter, Saudi Arabia, and one of the kingdom's geopolitical rivals, Russia.
At a gathering of the Organization of the Petroleum Exporting Countries in Vienna on Friday, Saudi Arabia and other Persian Gulf states are widely expected to ignore a plea by financially bruised cartel members including Iran to cut oil production. Reducing output - a step OPEC has taken in the past - could lift crude prices and the fortunes of economies that rely on oil, including Houston.
Russian and Saudi officials have formed a group to discuss building closer ties in the energy sector, and market stakeholders will listen closely for any hints from the OPEC meeting of potential Russia-Saudi concessions on crude output.
"Russia has a huge incentive to cooperate with OPEC at $40 oil," said oil trader Morgan Downey, author of "Oil 101."
The U.S. oil benchmark fell $1.91 to $39.94 a barrel on Wednesday on the New York Mercantile Exchange, its first settlement under $40 a barrel since August.
Russia, in an economic recession largely because of the oil downturn, is mulling deep cuts in health care and education spending next year.
"They know if they did cooperate and cut supply by 1 to 2 million barrels a day, then that would end the low prices," Downey said.
Any negotiations between Russia and Saudi Arabia, though, will come against the backdrop of an escalating conflict in Syria that has set off an oil price war between the Saudis and Russians in Asia and Europe. The Syrian civil war is complicated, but in general Russia supports the regime of Syrian President Bashar al-Assad, while Saudi Arabia backs rebels trying to overthrow him.
The Russia-Saudi Arabia rivalry ultimately affects prices at corner gas stations in Houston.
Together, Russia and Saudi Arabia have put out the equivalent this year of half the production from Texas' Eagle Ford Shale, with Russia pushing more exports into China through a key pipeline and Saudi Arabia stepping up sales on Russia's turf in Europe.
Meanwhile, production outside the 12-member OPEC cartel has crumpled and is projected to fall for the first time in four years during the current quarter of 2015, with declines reaching 520,000 barrels a day early next year. Russia and Saudi Arabia have kept pumping crude despite a brutal oil market downturn that has knocked Houston's oil hub around for more than a year.
The 18-month slump in the price of crude, which has dropped from more than $100 in June of 2014, has forced oil companies to scrap plans for scores of energy projects that keep white- and blue-collar Houston workers employed, and it has eaten away at U.S. shale drillers who have cut production. Dozens of them are in bankruptcy.
The bust is also behind more than 233,000 industry job cuts and is setting up Houston's oil complex, which employs tens of thousands, for another slow year in 2016. Economists don't expect a job market recovery next year. Local job growth has fallen sharply as the city's main conduit for economic activity, the energy sector, was hit hard.
Oil prices, analysts say, probably will languish below $50 a barrel next year, held back by several factors.
For one, economic growth in China and other emerging markets has slowed.
At the same time, as economic sanctions against Iran are lifted under an agreement curbing its nuclear program, it plans to increase its production by about the amount U.S. shale output has fallen - offsetting price gains that might result from that slowdown.
On Thanksgiving Day in 2014, OPEC announced it would abandon its historical role in reining in crude production to support prices. The next day, U.S. crude fell by $7.54 a barrel to $66.15 - a price the industry would welcome now.
'Great potential'
In the year since, Saudi Arabia has said repeatedly that it will refuse to be the only crude exporter to trim its output.
Traders are holding out hope that Russia eventually might become the kingdom's partner in cutting production.
But the two nations' opposing stances on the civil war in Syria weaken the prospects for such an alliance.
"If that conflict is continuing to fester, it'll be almost impossible for the Russians and the Saudis to come up with an agreement on oil," said Amy Myers Jaffe, executive director of Energy and Sustainability at the University of California at Davis.
Part of the reason Saudi Arabia and other Gulf states let the oil market crash late last year was because they believed cheap crude would cripple Russia and another geopolitical rival, Iran. But Russia, Jaffe said, believes an oil-related recession in the Persian Gulf will strain regional governments opposing Russia's goals in Syria.
"Everybody is betting that everybody else is the country that can't stand low oil prices," Jaffe said. She added it was unlikely Saudi Arabia will abandon its oil production strategy before it reaches its geopolitical goals. The International Monetary Fund believes Saudi Arabia's financial reserves will sustain it through half a decade of low crude prices.
Yet, in recent months, Saudi Arabia has warmed to Russia, in part because Russia will have more leverage over Iran once U.S. and European Union sanctions are lifted next year. The kingdom recently agreed to invest $10 billion in Russian energy projects, and the two announced late last month they formed an energy working group.
Russian Energy Minister Alexander Novak said he sees "great potential for cooperation" with Saudi Arabia. But that potential won't necessarily prompt a deal to curb production.
"Russia will try to work with Saudi Arabia, but it's going to be very, very difficult," said Hossein Askari, a professor of international affairs at George Washington University and a former consultant to Saudi Arabia.
"For Saudi Arabia to have a substantial impact on oil prices, it's going to have to decrease oil production quite a bit," Askari said. But the Saudis aren't eager to raise prices to the benefit of Iran and U.S. shale production.
'Need to develop'
Saudi Arabia's role on the world energy stage is changing. It isn't able to swing production as low as it once could because its economy and industrial sector have grown, and it is using more of its crude and nearly all of its natural gas at domestic refineries, said Jim Krane, an energy fellow at Rice University's Baker Institute for Public Policy.
In recent years, Saudi Arabia has snapped up refineries in the United States, China, Japan and South Korea in an effort to shift its role in the oil economy from being an oil supplier of last resort to supplying more of the refineries it has a stake in, concentrating on key markets in North America and East Asia.
"The swing supply role is holding them back developmentally," Krane said. "They need to develop, to get beyond just crude exports - digging stuff up out of the ground and putting it on boats. They want to create jobs for their people."
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