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Saturday, October 1, 2016

Russia-OPEC Output Deal Unlikely

November 20, 2015

Russia yet to decide on attending OPEC consultations.

There is little likelihood Russia will work with OPEC on cutting oil output ahead of or on the sidelines of a meeting of the exporter group in Vienna next month, officials and industry insiders say.

OPEC made a historic policy shift late last year, led by Saudi Arabia and backed by its Gulf allies, and refused to cut production to prop up sliding prices in order to defend market share. The group confirmed the strategy at a meeting in June.

Organization of the Petroleum Exporting Countries ministers will meet on Dec. 4 to coordinate the group's production, and a delegation from Russia, which accounts for about 12 percent of global oil output, may take part in a pre-meeting consultation once again.

A source close to the consultations said that Venezuela, an OPEC member which has been a proponent of output cuts, is keen to organise a meeting with non-OPEC countries beforehand.

"Russia's stance has not changed: we will make no cuts in oil production," the source said.

Russia, which depends heavily on oil revenues for its budget, has so far staunchly resisted making cuts to production, in part because it is locked in a battle for market share and knows a cut could see it cede ground.

Any cuts would therefore need to be synchronised with OPEC.

Russian officials have said that domestic companies would not be able to easily restart wells if they close them as part of any production cuts due to the harsh climate of Siberia, its oil heartland.

They also say that the government is unable to order companies to curb output as many of the oil producers are privately held.

RECORD OUTPUT

Russia, which gets half its revenues from oil and gas sales, depends on the money to, among other things, support military spending.

So far, in January-October, the budget accumulated 4.97 trillion roubles ($76.1 billion) from oil and gas sales, 12.6 percent less than the targeted amount, according to official statistics.

On Friday, Russian Energy Minister Alexander Novak said he was ready to attend consultations in Vienna on Dec. 3, but that there had been no formal arrangements or invitations so far. He gave no indication of Russia's readiness to cut oil production.

"We are discussing the situation, the prospects, the value of oil production, the balance of demand and supply," Novak told reporters.

Analysts say Russian companies are quite resilient in the face of falling prices of Urals blend, Russia's top crude oil grade, which have plunged from their June 2014 peak of more than $111 per barrel to just over $40 currently.

"Despite the recent fall in oil prices, Russian production continued to accelerate as oil producers remained profitable even in the lower oil price environment, helped by the effect of the weak rouble on costs and lower taxes, which decline in a lower oil price environment," Bank of America Merrill Lynch said in one of its reports.

Moscow's decision to keep oil output high, at more than 10.7 million barrels per day, a post-Soviet record, has also been supported by a sales push by Saudi Arabia and other Middle Eastern countries to Europe, a traditional market for Urals.

Igor Sechin, the head of Kremlin-controlled Rosneft , the world's top listed oil producer, has criticised OPEC for not cutting output, blaming low oil prices on factors from financial speculators to U.S government policy.

Sechin, a close ally of President Vladimir Putin, attended consultations with non-OPEC states prior to an OPEC meeting in November 2014, when the expectations of oil production cuts were high.

In the event, no deal on cuts was reached.

A spokesman for Rosneft said that were so far no plans for Sechin to fly to Vienna next month.

By Vladimir Soldatkin and Olesya Astakhova



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