Russia’s largest oil producer Rosneft will not cut or freeze its oil output under any deal struck between Russia and Opec, Reuters on October 11 quoted the company’s head Igor Sechin as saying, adding to uncertainty around the cartel’s new plan to cut production.
Sechin’s words came in stark contradiction to earlier comments by Russian President Vladimir Putin that non-cartel member Russia was ready to join the proposed Opec cap, which sent prices for crude to their highest point this year. However, the Rosneft head said he doubted that Opec countries, including Iran, Saudi Arabia and Venezuela, would cut their output either.
“Why should we do it?” Sechin, who is known for his anti-Opec stance, told Reuters in Istanbul on the evening of October 10 when asked if Rosneft, which accounts for 40% of Russia’s crude oil output, will support a limit agreement. Moreover, oil prices above $50 per barrel would make US shale oil projects profitable, Sechin added.
Meanwhile, Sechin’s position was strengthened by the simultaneous news that Rosneft acquired the controlling stake in the privatisation of Russia's Bashneft oil company in a one-horse race with the Kremlin's blessing. The move will increase Rosneft’s share of Russia’s crude production to more than 50%.
In the past, Russia and the Organization of the Petroleum Exporting Countries made several attempts to join forces to stabilise oil prices, but with few results. However, Putin’s backing for such a move now immediately pushed up the price of Brent crude to $53.65, the highest figure since October 2015.
“Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join,” Putin was quoted as saying by Vedomosti on October 10, adding that he hoped Opec members would confirm their course at a meeting in November.
While it isn’t yet clear what impact Sechin's statements will have, analysts are uncertain about the future of the Opec move. Cartel members will have to resolve major obstacles before the decision to cut output could be translated into concrete agreements, Energy Aspects said.
“This market has rewarded the Opec rhetoric,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, was quoted as saying by Bloomberg. “Let’s see if their deeds match their words.”
“Given the propensity of Opec and other producers to talk up prices, and the history of failed deals among Opec [members] and between Opec and Russia, we would continue to treat the news somewhat carefully for the longer term,” Sberbank CIB said in a research note. In the shorter term, however, the ongoing conversations support oil prices, according to the bank’s analysts.
“In our opinion, a production freeze agreement poses no risks for Russia,” Gazprombank said, adding that if the country’s oil output remains at its current level, production in 2016 will be still 1% above the plan of 538mn tonnes, according to the Economic Development Ministry’s base-case scenario from May 2016.
Analysts also see the growth continuing in the longer term, albeit at a much slower rate.
“Although this booming rate of output gains cannot be sustained; slow, steady production increases from these levels will remain the norm at least until 2020,” Citigroup’s senior Russian oil and gas analyst Ronald Smith wrote in a recent comment published in the Financial Times, forecasting a peak output of 11.5mn barrels per day in about five years’ time.
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