Russia’s energy ministry is discussing potential oil production cuts with local producers and will continue talks to come up with a position by the OPEC/non-OPEC meeting in early December, Energy Minister Alexander Novak said on Monday.
We discussed it and we will continue to discuss it, Russian news agency Prime quoted Novak as telling reporters today, but failed market hopes that a deal may be announced this past weekend resulted in a dramatic price slide on Monday with WTI falling below $56.
“We are in constant contact to have a position ready by December,” Novak said.
OPEC and non-OPEC partners in the production cut deal are meeting in Vienna on December 6 and 7, and speculation has intensified over the past week that the cartel and its de facto leader Saudi Arabia may be willing to make another U-turn in oil production policy and decide to cut production next year, just months after increasing output to offset expected losses from Iran and Venezuela.
Russia plans to sign a partnership agreement with OPEC, Novak said on Monday, adding that it would be discussed at the December meeting.
While Saudi Arabia’s Energy Minister Khalid al-Falih says that based on the OPEC+ group technical analysis, “there will need to be a reduction of supply from October levels approaching a million barrels,” reports emerged last week that Russia would rather stay out of any fresh oil production cuts led by the Saudis.
Russia—which together with Saudi Arabia and some Arab Gulf producers has been raising production since June to offset Iranian losses—saw its oil production set a new post-Soviet record high of 11.41 million bpd in October, up from 11.36 million bpd in September.
Russia’s current official position is ‘wait and see’ and not to rush into hasty decisions. There is no need to take any action to halt the decline of oil prices that started a month ago, Novak said last week.
Russia’s President Vladimir Putin said last week that “it is obvious that we should cooperate and we will cooperate” with OPEC, but refrained from commenting on whether there is need to reduce oil production.
By Tsvetana Paraskova for Oilprice.com
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Well Russia could afford to wait because its economy can now live happily and forever with an oil price of $40 a barrel or even less compared with the overwhelming majority of OPEC members including Saudi Arabia who need an oil price higher than $100 to balance their budgets.
Another reason for Russia’s hesitation is that the bulk of Russian oil production is done by private companies with a small government stake in them. These companies have been investing heavily in expanding their production capacity and they therefore need to recoup their investments quickly. They will not be keen on cutting any production.
It is probable that the majority of OPEC members will not agree new cuts in production in their meeting in December. Instead, they will ask Saudi Arabia and Russia to withdraw instead the 400,000 barrels a day (b/d) and the 250,000 b/d they added respectively to the market six weeks ago in spite of objection by the overwhelming majority of OPEC members.
Still, Russia may have to agree a symbolic withdrawal of some 50,000 b/d from the 250,000 b/d it added to the market in October if Saudi Arabia agreed to do likewise. Saudi Arabia has already said it will reduce its exports from December onward by 500,000 b/d.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London