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Russia Isn’t Interested In Joining New OPEC-led Oil Output Cuts

Transneft oil

Russia prefers to stay out of any fresh oil production cuts led by OPEC’s leader Saudi Arabia, Reuters reported on Thursday, quoting two high-ranking Russian sources.

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.

However, Russia’s key partner in the production cut deal, Saudi Arabia, has expressed concern over the oil price slump in the past month. Saudi Energy Minister Khalid al-Falih said on Monday that based on the OPEC+ group technical analysis, “there will need to be a reduction of supply from October levels approaching a million barrels.”

While al-Falih reiterated that “we need to do whatever it takes to balance the market,” Russia’s 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, Russia’s Energy Minister Alexander Novak said earlier this week.

Speaking to Russian reporters about the OPEC+ deal during a visit to Singapore, Russia’s President Vladimir Putin said, as provided by the Kremlin:

“As for the need to limit production or not, I will not say anything about this for the time being. We must be very careful in this respect because every word is important and affects the federal budget revenues. However, it is obvious that we should cooperate and we will cooperate.”

Related: Russia’s Most Powerful Oilman: We're Fine With Any Oil Price

“About $70 per barrel suits us perfectly well considering that the expenditure side of our budget is based on $40 per barrel,” Putin said.

A senior Russian government source told Reuters that production in Russia shouldn’t be reduced, as Moscow has been growing its output and will continue to do so in the future.

A second Reuters source familiar with Russian thinking said that Russia was likely to support smaller cuts than 1.4 million bpd proposed, but likely by other producers. A small cut from the record-high October level could be a ‘win-win’ for Russia, according to the source, or Moscow could offer not to boost production further.

Russian oil companies are unlikely to be on board with a U-turn and cuts, either. Vagit Alekperov, CEO at Russia’s second-biggest oil producer Lukoil, said this week that he doesn’t see any need of cuts in 2019.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on November 15 2018 said:
    The diversification drive ordered by President Putin immediately after the oil price crash of 2014 and the imposition of US sanctions on Russia has enabled the Russian economy to live with an oil price of $40 or less. Moreover, Russia’s budget dependence on oil and gas export revenues has declined for 68% in 2014 to 40% now.

    Therefore, a price of $70 per barrel suits the Russian budget perfectly well considering that the expenditure side of their budget is based on $40 per barrel. This may explain why Russia is not in a rush to join OPEC in any plans to cut production.

    OPEC members are well advised to wait before considering any production cuts. A few weeks ago oil hit $87 a barrel. Today it is $67. Tomorrow the markets could change from bearish to bullish sending prices up to $80 since the robust fundamentals of the global oil market are still the same as they were in October when the oil price hit $87. These fundamentals could still support an oil price ranging from $80-$85 before the end of the year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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