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The Reason Why Russia Refused To Cut Oil Production

OPEC asked Russia to cut an additional 300,000 bpd in oil production at last week’s meeting in Vienna, but according to Russia’s Deputy Energy Minister, this would’ve been ‘technically challenging’

OPEC asked Russia to add another 300,000 bpd to its production cut quota art the Vienna meeting last week, but it would have been technically challenging to do this, deputy energy minister Pavel Sorokin told Reuters.

But there was also the uncertainty about oil demand developments in the immediate future that determined Russia’s response to the OPEC proposal, which sparked an oil price war with Saudi Arabia.

“We cannot fight a falling demand situation when there is no clarity about where the bottom (of demand) is,” the deputy minister told Reuters in an interview. “It is very easy to get caught in a circle when, by cutting once, you get into an even... worse situation in say two weeks: oil prices would shortly bounce back before falling again as demand continued to fall.”

Like his boss Alexander Novak, Sorokin said Russia remained open to further discussions with OPEC.

“All communication channels are open, but I cannot predict when we will meet again - this largely depends on our partners,” Sorokin said.

Their partners from Saudi Arabia, meanwhile, don’t seem so open to further communication.

“I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures,” Energy Minister Abdulaziz bin Salman told Reuters in response to a request to comment on Alexander Novak’s statement that OPEC+ was due to meet later this year for further discussions.

Russia plans to boost its production by between 300,000 and 500,000 bpd from next month, which would bring the total to 11.8 million bpd. Meanwhile, Saudi Arabia said it will boost its production by more than 3 million barrels daily from current levels, to 12.3 million bpd, which is more than its production capacity. To be able to maintain this production rate, the state energy company Aramco has been told to boost its production capacity to 13 million bpd.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on March 12 2020 said:
    The reason why Russia refused OPEC+ request for deepening production cuts is that any such cuts would have been futile and wouldn’t have any positive impact whatsoever on oil prices while the coronavirus is raging. Russia argued that any OPEC+ cuts would have extended a lifeline to a sinking US shale oil industry. That was, in my opinion, a logical decision.

    Moreover, Russian oil companies were completely against any more cuts as they have been investing heavily in expanding Russian oil production and they wanted a quick return on their investments.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • jake Leon on March 13 2020 said:
    There may be a political component to this. The corona virus will impact all the world's economies and may drive unemployment up in the U.S. This would really strengthen the Democratic ticket in the U.S.

    Trump isn't a Putin ally but he does have great empathy for leadership, even quasi-democratic leaders, kings, and dictators. A Democratic candidate, full of non-pragmatic thinking, would be a difficult country to deal with. I think Putin believes Trump truly wants to limit U.S. foreign campaigns, if Trump is defeated in the election it is anybody's guess on Iran, on Troops in Syria. Any old "Wag-the-Dog" scenario is in play, with Democratic win.

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