Russia is conducting “unprecedentedly active” consultations with the Organization of the Petroleum Exporting Countries but isn’t discussing oil production cuts to support prices, Russian officials said on Wednesday.
The consultations come after several months of low oil prices that are putting pressure on Russia’s budget and currency, but Russian officials poured cold water on any suggestion of coordinated production cuts.
“The Energy Ministry is continuing to conduct active consultations and work with the European Union, countries of the Asia-Pacific region, the Middle East, including within the framework of OPEC, as well as with the countries of Latin America,” Deputy Prime Minister Arkady Dvorkovich said on Wednesday, the official RIA-Novosti news agency reported. “These consultations are unprecedentedly active and this work should be continued.”
He didn’t give any more details, but a spokeswoman for the Energy Ministry said that consultations with OPEC involve issues on the oil market and sharing countries’ views, and that there was no talk of Russia cutting its oil output.
Last December, OPEC sent prices tumbling when it decided against its traditional role of rolling back production to boost prices, over the objections of some of the cartel’s members. Instead the cartel has fought a pitched battle for market share, pumping well above its agreed upon ceiling.
Saudi Arabian and OPEC officials have said recently that they would consider cutting production in concert with big non-OPEC producers such as Russia, the world’s largest producer of crude oil, and there have been renewed calls for cooperation in particular from Russia’s ally Venezuela, according to an OPEC delegate.
But Russian officials have long argued that the country’s oil infrastructure is ill-suited to adjusting output to influence prices and have failed to heed to previous pledges to cut production.
During a previous oil-price crash in September 2008, Russian officials promised a Russian production cut to Saudi Arabia and OPEC, according to an OPEC delegate. But Russia then increased production instead.
If Russia was to promise a production cut this time, “OPEC will want it in writing,” the OPEC delegate said.
In November, after oil prices plunged, newspaper reports ahead of an OPEC meeting suggested that Russia could cut production in coordination with OPEC to support prices, a reminder of pledges in earlier years by Moscow to reduce output that never amounted to anything.
But Russian officials later said that the country wouldn’t cut output. “We are not Saudi Arabia, which has the ability to reduce production quickly, ramp up quickly,” said Russian Energy Minister Alexander Novak at the time.
Mr. Novak said that Russia would keep output steady in the next few years. “That’s our contribution to stabilize the situation on global oil markets,” he said.
Russia’s economy ministry forecasts that its oil output will be unchanged at 525 million tons a year in 2015 and in 2016. In 2017, Russia’s output is set to decline to 521 million tons, the ministry says.
In an interview with state television broadcast on Tuesday, Mr. Novak described Russia’s cooperation with OPEC in the same terms as in the past and seemed cool to Saudi suggestions that it would cut output to boost prices only if non-OPEC producers such as Russia did too. Mr. Novak said restricting production or exports in a coordinated way to raise prices would do so “artificially.”
Russia supports what he described as the alternate approach, “which in our view is already rather effectively being implemented today,” relying on market forces to squeeze high-cost projects—such as U.S. shale oil—out of the market and thus limit supply growth. “There’s an inertial element in these processes that takes from six to nine months, but we already see that the market has reacted,” he said, with prices up from January levels.
“A fundamental restoration of the balance between demand and supply has already taken place and it will continue to,” he said.
“As for cooperation with the OPEC countries, we are conducting consultations, we’re exchanging information, we’re monitoring markets and this is a normal process of exchanging information,” he said.
“But our position is that it would be ideal if today the surplus of oil that’s on the market were absorbed either by an increase in economic growth rates because economies are being stimulated by lower prices for oil and gas or by the lack of increase of the supply [of oil] at least until demand and supply are balanced.”
He said that he continues to expect crude prices to be about $60 a barrel at the end of this year, having averaged about $55 for the full year.
Saudi Arabia’s oil minister Ali al-Naimi on Tuesday discussed developing oil cooperation with Russia’s Ambassador in Riyadh Oleg Ozerov, according to the official Saudi Press Agency.
Later Wednesday, Mr. Novak said he’s scheduled to meet OPEC secretary general Abdalla Salem el-Badri in June to continue consultations, the Interfax news agency reported. “We are in constant contact with OPEC, discussing the situation on the oil market, the development of shale oil, refining, tax changes. This is a normal process,” he said.
By Gregory L. White
