Russia claims Saudis proposing oil production cut

Russia claims Saudis proposing oil production cut

Renda, a Russian ice-strengthened oil tanker. Source: Wikimedia

Russian Energy Minister Alexander Novak said that Saudi Arabia was proposing a cut in oil production of up to 5 per cent by exporter to boost prices.

Opec delegates responded by saying there was no plan to discuss a production cut. “These parameters were proposed, to cut production by each country by up to 5 per cent,” Novak said. This would represent around 500,000 barrels per day (bpd) of output cuts by Russia.

“This is a subject for discussions. It’s too early to talk about. There are lots of questions about the oversight over cuts,” Novak said, adding that Russia was ready for the meeting. Oil markets rallied on the news, with Brent crude hitting its highest level since early January.

President Vladimir Putin’s ally Igor Sechin, chief executive of Russia’s biggest oil producer, Rosneft, was absent at the Kremlin’s meeting of oil executives and civil servants, suggesting Putin is undecided on the move.

Russia is not an Opec member.

The final decision will lie with Putin but Sechin’s input is seen as important. Russia last worked with Opec in 2001 at the start of Putin’s first presidency, when Russia promised modest exports cuts but raised them instead.

Sechin has said in public that Russia, the world’s largest oil producer, would not back down with Opec even though prices had fallen to below US$30 per barrel from US$115 around 18 months ago.

The only Opec members to clearly support a production cut so far are Algeria, Equador and Venezuela.

Saudi Arabia, which dominates Opec, repeatedly called on non-members to contribute to output cuts to deal with the oil glut, which follows a boom in US shale oil production and a move by Opec to increase production in an attempt to win back its market share.

“It was clear to everyone in the room that if we agree to cooperate, the Saudis will ask for a cut of 4 to 5 per cent or 400,000 to 500,000 bpd from Russia. Then, opinions differed whether Russia could really do it,” a source from the meeting was reported saying.

The Russian rouble is weakening ahead of this year’s parliamentary election and a presidential election is due in 2018. Transneft, which is the world’s largest pipeline network and controls Russia’s exports, would have a role in ensuring state and private exporters did not exceed their quotas if an Opec deal was reached. Sechin, 56, helped Putin gather a third of Russia’s oil industry into Rosneft following the breakup of the Soviet Union and the subsequent chaotic privatisations of the 1990s.

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