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Russian oil companies will meet at the energy ministry on Wednesday to discuss if Russia’s producers should continue cooperation with OPEC, two sources with knowledge of the plans told Reuters on Tuesday.
“We plan to discuss whether to return to (cooperation with) OPEC or not,” one of those sources told Reuters.
The energy ministry has called the meeting days after Russia refused to play ball in OPEC’s umpteenth proposal for production cuts.
OPEC’s leader and top producer Saudi Arabia and Russia on Friday put an abrupt end to their three-year-long oil bromance trying to support oil prices and erasing the glut on the market. Russia’s Energy Minister Alexander Novak told OPEC+ countries that they were free to pump oil at will after April 1, after OPEC and Russia failed to agree on deeper cuts in response to the depressed oil demand due to the coronavirus outbreak.
Saudi Arabia responded with an attempt to grab market share from Russia with a significant cut in its official selling prices (OSPs) to all regions and with signals that it plans to boost production as of April 1, sending oil prices into a tailspin on Monday.
Russia issued a statement yesterday, saying that it had enough resources to cover budget shortfalls amid oil prices at $25-30 a barrel for six to ten years.
The Russian oil industry holds a quality resource base and enough financial margins to continue to be competitive at any price and to keep its market share, Novak said at a government meeting on Monday.
The largest Russian oil company, Rosneft, which has long criticized the OPEC+ agreement, slammed the deal after the OPEC+ coalition broke up.
The OPEC+ agreement was meaningless from Russia’s point of view, Rosneft’s spokesman Mikhail Leontyev told Russian outlet RBC on Sunday.
“By ceding ground on our markets, we take cheaper Arab and Russian oil off the market only to clear the field for more expensive U.S. shale production and to help its production efficiency,” Leontyev said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
Moreover, Saudi Arabia’s threat of flooding the global oil market with oil and waging a price war against Russia could be an attempt to exert pressure on Russia to maintain cooperation with OPEC.
Saudi Arabia could never win a price war with Russia. Things have changed since 2014 when Saudi Arabia did exactly that. Russia’s economy could live easily with an oil price ranging from $25-$30 for many years to come compared with a much higher price than $85 for Saudi Arabia and the majority of OPEC members.
Moreover, Saudi Arabia doesn’t have the spare production capacity to flood the oil market with oil from new production. It has to draw oil from its stored reserves on tankers and underground stores. In so doing, it will put itself in a very serious situation. Saudi Arabia will be the biggest loser.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London