Russia Contemplates Options on Oil Output

On January 28 Russia's energy minister Alexander Novak said that Opec might discuss a 5% production cut during its planned meeting this February. “This topic was addressed by Opec at its previous meeting. The parameters proposed then were to cut production by each country by up to 5%. Yet, we need a total agreement to thrash out such questions." Brent crude this month traded at a 12-year low, below $30.

However, later Opec representatives responded by saying there were no such plans to curb production, but "Gulf Opec countries and Saudi Arabia are willing to cooperate for any action to stabilize the international oil market."

Saudi Arabia has consistently encouraged non-members to cut production if they want Opec to help producers deal with the oil glut. In that context Novak’s comments are of interest in that he said that Russia was ready for a meeting between Opec  and non-Opec nations at the oil minister level, while not definitely committing support to the idea of cuts.

Internal discussions of oil and gas companies within the Russian energy ministry have also not yet brought any results. According to a source quoted by Reuters, the delegates were discussing “whether to try to hold the price at around $35/b or to take steps to attempt to increase the price to $50/b”.

If Saudi Arabia and Russia both cut production by 5% – which would represent an about-turn of their existing shared practice of pumping as much as possible – they would represent each around 500,000 b/d of cuts, equalling the oversupply that the International Energy Agency puts at 1mn b/d.

While crude production elsewhere will fall by some 600,000 b/d, Iran will more than compensate for that, the IEA said in its January Oil Market Report.

The IEA said that some analysts argue that the easing of sanctions on Iran was already "priced in" to the market and that there were also "considerable uncertainties around the quality and quantity of oil that Iran can offer to the market in the short term and the not inconsiderable challenge of finding buyers willing to take more oil into an already glutted market. However, if Iran can move quickly to offer its oil under attractive terms, there may be more 'pricing in' to come. Time will tell."

Marina Zvonareva