Russian Energy Minister Alexander Novak has confirmed that Saudi Arabia had proposed oil producing countries cut production by up to 5 percent each in order to support weak oil prices.
Oil prices continue to get a bit of a boost from the idea that major producers – particularly Russia – may cooperate to cut production.
We think it's reasonable to discuss the situation
Russia’s Energy Minister Alexander Novak has confirmed they would take part in a meeting some time next month between OPEC member-states and other oil producers.
He said Saudi Arabia had proposed that oil producing countries cut output by up to five percent each. That would represent a reduction of around 500,000 barrels per day by Russia.
“This is a subject for discussions, it’s too early to talk about it,” he said, adding “We think it’s reasonable to discuss the situation.”
But some analysts believe Russia is actually likely to increase production this year to protect its economy.
Andrey Polischuk, oil and gas analyst at Raiffeisen Bank, said that key is US shale oil production which is expensive to drill: “The most important trigger for this year is a possible drop in non-OPEC production, such producers have very high costs and currently [prices] are too low for maintaining the current level of production.”
OPEC’s most powerful member Saudi Arabia has been trying to make it uneconomic for the shale producers by flooding the market resulting in the glut and massive price slump, but now no one can afford to pump less knowing others would step in to fill the gap and there is the risk of losing market share to competitors.
That applies particularly to Russia, which is very dependent on oil revenues and also facing technical difficulties in reducing production in winter.
Brenda Kelly, head analyst at London Capital Group, said the proposed cuts were unlikely to happen.
“There have been attempts in the past that have come to (nothing). Saying something about the oil price and doing something are very different things, and it seems like panic given the price drop.”
The Sechin factor
For Russia the final word will be from the Kremlin. And there was an indication of the thinking there from the fact that when Russian government officials and oil executives met this week to discuss the merits of jointly cutting oil output with OPEC, President Vladimir Putin’s close ally Igor Sechin did not attend.
He is the chief executive of Russia’s biggest oil producer, Rosneft and has repeatedly made clear in public that Russia – now the world’s largest oil producer – will not blink first in the battle with OPEC over market share and pricing.
Sechin, 56, who helped Putin consolidate a third of Russian oil industry under Rosneft following the chaotic privatisation of the 1990s that followed the collapse of the communist Soviet Union, has until now left no doubt about his position on joint output cuts with OPEC.
“Sechin has long been totally against the idea. He believes that, as a superpower, Russia should not be making this type of alliance,” said a source from outside Russia who has been involved in meetings between OPEC and Russia in recent years.