OPEC Secretary General Mohammed Barkindo offered the market another treat today, saying that Russia is “on board” with “the Algiers accord.”
This assurance, following numerous other OPEC assurances, comes after a brutal week for oil prices, and in true OPEC form, it is now in a desperation push to keep oil prices from further tanking.
Absent from the story is any news directly from Russia, which seems to be not only flip-flopping in its stance, but a country divided on the issue, with Vladimir Putin, Energy Minister Alexander Novak, and Rosneft’s Igor Sechin having seemingly different viewpoints on the subject.
Since Putin said in early October that Russia would join the efforts to reduce the global oil supply—a statement that sent oil prices to one-year-highs—Russian officials have not been especially eloquent and specific about their plans and intentions as far as their participation in a freeze (a cut has hardly been even discussed in Russia).
A day after Putin proclaimed that Russia would back a possible OPEC deal if OPEC were ever to get its own ducks in a row, Rosneft’s Sechin said that his company would never cap production, in a sign that at least at that time, there was fundamental disunity regarding the direction Russia would take on oil.
Energy Minister Novak entered the game of dropping comments and interviews a week later, saying that freezing global crude oil production—at the current near-record-breaking production levels—for six months with an option for an extension would be the most appropriate and efficient way to rebalance the market. Analysts disagreed that a mere freeze would do anything to relieve the supply glut.
Since mid-October, Novak has been less and less specific in his comments on OPEC talks and possible deals.
Ironically, Russia’s waffling between producing at maximum levels and freezing production seems to mirror the Saudi’s waffling of the exact same nature, which has repeatedly committed to a freeze with one side of its mouth, and threatened Iran to boost production until prices collapse with the other.
And while several OPEC nations are currently in desperation mode regarding low oil prices, which are breaking economic backs, Russia appears to be much better positioned, despite tapping into more reserves to cover budget shortfalls. Russia has been ramping up crude production in recent months, and, due to its low cost of production, its oil companies are expected to remain free cash flow positive at any price above US$10 a barrel, according to Goldman Sachs. Related: Fracking Under Fire: The Ballot Initiatives That Impact Oil & Gas
This breakeven price suggests that Russia is neither desperate or motivated to push for an OPEC-non-OPEC deal on production limits; it’s rather Russia playing the waiting game to see if ‘a joint action’ to stabilize the oil market will mean a winning hand for it in the longer run.
Russia is increasing production and waiting for the OPEC producers to reach a deal first, and if (a very big ‘if’) the cartel were to reach a common stance, Russia would enter the ‘freeze-now’ game with production levels high enough that we last saw them during the Soviet era.
Russia’s oil production in October was a post-Soviet era high at 11.2 million bpd.
In theory, Russia could be ‘on board’ for a deal with OPEC, but it would not shoot itself in the foot by sacrificing market share to reach said agreement.
However, before any Russian ‘commitment’, ‘effort’, or ‘joining a deal’, OPEC needs to sort out its own infighting, regional rivalry, bickering, pleas for exemption, and disputes over which data to use to calculate the members’ output.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Majors Secretly Discuss ‘Market Changes’ With State-Owned Oil Companies
- Oman Willing To Cut Up To 10% If OPEC Leads The Way
- Saudi-Iranian Fallout Could Destroy The OPEC Deal