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Russian Oil Execs Agree To Talk With OPEC About Boosting Prices

A laboratory assistant selects oil samples in a laboratory at a pumping station of the Eastern Siberia–Pacific Ocean (ESPO) system of Transneft, Russia's pipeline monopoly.
A laboratory assistant selects oil samples in a laboratory at a pumping station of the Eastern Siberia–Pacific Ocean (ESPO) system of Transneft, Russia's pipeline monopoly.

Russian oil executives and energy officials decided this week they should talk to Saudi Arabia and the OPEC oil cartel about cutting output to boost world oil prices, the head of Russia's pipeline monopoly said on January 27.

The comments by Nikolai Tokarev, head of Transneft, gave the strongest indication to date of possible cooperation between the cartel and Russia, the top non-OPEC oil producer, and helped spur a sharp rise of more than 5 percent in world oil prices.

A vice president of Lukoil, Russia's No. 2 oil producer, said earlier this week that Moscow should start talking to OPEC.

Tokarev said oil executives and government officials met in Moscow on January 26 and reached the conclusion that talks with OPEC were needed to shore up oil prices.

"At the meeting, there was discussion in particular about the oil price and what steps we should take collectively to change the situation for the better, including negotiations within the framework of OPEC as a whole, and bilaterally," he said.

"The main initiative is being shown by, of course, our Saudi partners. They are the main negotiators. That means that they are the ones we need to discuss this with first of all."

He said Russia was willing to discuss output cuts with OPEC, calling that "one of the levers or mechanisms that would allow us to in some way balance the oil price."

The oil executives meeting in Moscow, moreover, discussed the technical feasibility of cutting production in Russia, he said, and agreed that because oil field activities are frozen in during the winter, production cuts would only be possible in the summer.

A Russian Energy Ministry representative confirmed to Reuters that possible coordination with OPEC had been discussed at the meeting, which the ministry hosted.

"The meeting participants discussed the possibility of coordination of actions with OPEC members amid unfavorable market conditions on the global oil market," the official said.

Premium crude prices have fallen from around $115 a barrel in the middle of 2014 to a little above $30, causing problems for oil producers everywhere, from bankrupting shale producers in the United States to forcing first-time reforms such as the elimination of expensive energy subsidies in wealthy Persian Gulf states.

In Russia, the price collapse along with economic sanctions imposed by the West over the crisis in Ukraine has pushed the economy into recession and severely depleted government revenues.

Hard-hit Venezuela and other members of the Organization of Petroleum Exporting Countries want coordinated output cuts to push up prices, and they have been pressing Russia to play its part.

But Russian officials have always resisted such calls in the past, citing the futility of trying to counter entrenched market trends like the current downturn.

A Kremlin spokesman told Reuters on January 27 that while Russia holds regular discussions with other oil-producers on the situation in world markets, there are no plans as of now for coordinated actions.

Thus it would be a major reversal for Russia if discussions with OPEC begin in earnest following this week's apparent agreement among oil executives in Moscow.

Russian production reached a new post-Soviet high in December of 10.80 million barrels per day. That puts it in the same league as Saudi Arabia, OPEC's biggest producer, which also pumps more than 10 million barrels a day.

Agreeing to output cuts would also be a big change for OPEC, which accounts for one-third of global output. The cartel failed to agree to any cuts at a meeting last month, with the Saudis and other participants sticking to their game plan of maintaining output to maintain their market share and drive out high-cost shale producers in North America.

The meeting broke up in disarray after Iran, previously kept from international markets by Western sanctions, insisted on its right to dramatically increase production by up to 1 million barrels a day with the lifting of sanctions this year.

Economists estimate that suppliers already are producing about 1.5 million barrels per day more than global consumers need. That has produced a glut of oil on world markets so acute that some countries are running out of space to store it cheaply.

So far, within OPEC, only Algeria and Venezuela have clearly expressed support for a production cut.

However, Iraq, OPEC's second-biggest producer after Saudi Arabia, softened its stance this week, saying it is now willing to reduce its output if all major producers inside and outside of OPEC agree.

Iraq, like Iran, has been ramping up production and hit record production levels last month, in a development that shook markets and sent oil prices spiraling lower earlier this week.

But while Russia and Iraq now seem more willing to tighten the oil spigot, Iran remains bent on increasing production, leading many analysts to be skeptical that any agreement on output cuts is on the way.

With reporting by Reuters and TASS
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