Putin keeps Russian oil majors in line as OPEC output cut talks continue

NEW EUROPE/KOSTIS GEROPOULOS

A gas station of Russian oil major LUKOIL on the highway to Zaraisk, Moscow Region, December 4, 2018. Russian oil majors are not in favor of another production cut.

It looks like Putin has told the oil companies that they have to be prepared to cut oil production again if it is in the national interest, Weafer told New Europe.


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MOSCOW – The Organization of the Petroleum Exporting Countries (OPEC) and non-member producer Russia are in discussions being held in Moscow about a potential crude-production, though they are unlikely to agree to the 300,000 barrel per day reduction that had been committed to in the past.

The talks come as US President Donald J. Trump urged the oil cartel to keep production at current levels and prices down.

Chris Weafer, a senior partner at Macro-Advisory in Moscow, told New Europe that Russia’s oil majors are not in favour of another production cut. “They see that as mainly benefiting the US producers because a higher price and less OPEC-Russia oil would help the US grow both production and exports and to gain a bigger global market share,” Weafer said.

Trump, meanwhile, resumed his public pressure on the oil group, saying in a tweet on December 5, “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!”

Weafer, however, said that Russian President Vladimir Putin had made clear at the recently completed G20 in Buenos Aires that the political relationship with Saudi Arabia, and the other Gulf Arab states, is a key political priority for him and for Russia.

“It looks like he has told the oil companies that they have to be prepared to cut again if it is in the national interest,” Weafer said. “If that is what they are told, if this is what Russia agrees with Saudi Arabia or, more specifically, if this is what Putin agrees with (Saudi) Crown Prince Mohammed (bin Salman), then they will have no choice but to again fully comply,” Weafer said, adding that the days when Russia promised and then ignored the promise are gone.

“Putin would not stand for that given what is at stake,” said Weafer.“But I do not expect Russia to agree to the same 300,000 barrel per day cut it committed to in November 2016,” Weafer said, referring to the last time the OPEC+ group agreed to curtail output, settling on a combined 1.8 million-barrel-a-day reduction.

“The country is in a much better financial position today and Putin is more likely to look for a compromise to satisfy both Saudi and Russian oil majors,” the Moscow-based expert said.

Meanwhile, Saudi Arabia’s Energy Minister Khalid al-Falih told reporters on December 6
that a cut of 1 million barrels per day would be enough for OPEC and its allied oil producers, CNBC reported. The oil-rich kingdom had indicated previously that it wanted the group to curb output by at least 1.3 million barrels per day.

On December 6, International Brent crude oil futures LCOc1 were at $61.35 per barrel at 0747 GMT, down 21 cents, or 0.3% from their last close, Reuters reported. US West Texas Intermediate (WTI) crude futures CLc1 were at $53.17 per barrel, down 28 cents, or 0.5%.

Weafer said he expects Russia to agree to a cut of 100,000 or 150,000 barrels per day, at most, and to make that conditional on oil price weakness rather than an open-ended commitment.

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