OPEC’s latest headache: Russian reluctance to cut oil output

Even as Russia talked about a freeze, it continued to ramp up output

Gulf News

London

For months, Russia has told Opec its preferred option in any eventual oil-supply deal was to freeze production, rather than to cut it. It’s dawning on the group that Moscow may actually mean it.

While Russia talked about a freeze, Saudi Arabia and its allies privately expected Moscow would eventually join a cut if the Organisation of Petroleum Exporting Countries delivered its own reduction, according to people briefed on the matter, who asked not to be named because of the sensitive nature of the talks.

Several Opec members are adamant Russia must reduce supply if the plan to ease a global glut is to succeed. Just one week before OPEC’s ministerial meeting in Vienna, that prospect seems less likely.

The two views are set to clash on November 28 in talks between Opec and non-OPEC nations. The outcome may decide whether there is any eventual agreement. Russia, Azerbaijan and Mexico are set to participate, according to people familiar with the arrangements. Others that have attended previous gatherings, including Oman, are not joining this time.

If Russia and other non-OPEC producers balk at the idea of cutting output, Saudi Arabia could reconsider pushing ahead.

“The negotiations will continue until the very end, and the deal is likely to go down to the wire,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.

Russian Energy Minister Alexander Novak on Wednesday said that a delegation plans to meet Saudi Arabia and others on Monday, but that it was too early to say whether the nation would join the formal Opec ministerial meeting November 30.

It’s easy to see how the Saudis and other Opec members may have gotten it wrong. Russia never explicitly ruled out cuts, merely saying it favoured a freeze at current levels — a record 11.2 million barrels a day. But recently the message from the Kremlin, at least in public, has been more uncompromising.

“There is no difficulty for us to freeze production,” Russian President Vladimir Putin said on Sunday after a regional conference, in comments that some Opec delegates have taken as all but ruling out cuts.

Even as Russia talked about a freeze, it continued to ramp up output. Since September, when Putin and Saudi Deputy Crown Prince Mohammad Bin Salman sat down for the last round of bilateral oil talks, Moscow has added another half a million barrels of daily production.

“Saudi Arabia is very worried about Putin’s comments suggesting Moscow will merely freeze at current post-soviet record levels,” said Alexandre Andlauer, head of oil at research firm Alphavalue in Paris.

Opec has enough problems without Russian intransigence. Preliminary talks in Vienna this week failed to agree on production quotas, leaving the biggest obstacles to a deal — how to treat newly resurgent producers Iraq and Iran — to be settled at the meeting next week.

Iraq’s Prime Minister Haider Al-Abadi said Wednesday the nation is now willing to shoulder part of the burden of cuts, potentially removing one obstacle to a deal. Benchmark Brent crude, which has more than halved since mid-2014, was little changed at $48.97 (Dh180) a barrel as of 12:49pm in Singapore on Thursday.

Moscow and other non-OPEC members want specifics before making any commitment and will take a “wait and see” approach, according to a non-OPEC delegate who asked not to be named to avoid jeopardising the talks.

The hesitation from producers outside Opec is understandable. Earlier this year, Saudi Arabia sank an output-freeze agreement because of the non-participation by its old foe, Iran.

The Saudi U-turn left Novak, who put a significant amount of political capital into the failed deal, empty-handed. It also was a vindication for those in Moscow who have been sceptical about a pact with Opec, including the powerful head of state-owned oil producer Rosneft PJSC, Igor Sechin.

—Bloomberg

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