RIYADH: Euphoria struck the markets as chatter about a possible Opec-Russian entente on coordinated output cut gained currency.
Kicking things off last Monday, Abdallah Salem El Badri, the Opec Secretary General, talked about the possibility of Opec and non-Opec producers working together to cut output. “Tough times require tough choices. It is crucial that all major producers sit down and come up with a solution,” he emphasised.
And in the meantime, Russian Energy Minister Alexander Novak hinted; his government was willing to engage in “coordination” with Opec. He mentioned Russia could cut output by up to 500,000 bpd. Novak said the two sides would discuss cuts of around 5pc from the world’s markets, or 2m barrels a day.
The chatter was further fuelled by the statement of Iraq’s oil minister Adel Abdul Mahdi, underlining that Saudi Arabia and Russia might be ready to become “more flexible” on the issue.
And then Russian TASS news agency quoting Transneft President Nikolai Tokarev reported that Saudi and Russian officials had (already) met to discuss production cuts. And almost at the same time Interfax suggested a February Opec summit was on cards and the Russians had been invited to it. It also cited Alexander Korsik, chief executive of Russian state-owned Bashneft, as having said that a meeting discussing coordinated production cuts had indeed taken place.
In the meantime, media reports also confirmed of meetings taking place between the Russian Energy Ministry officials and Russian oil companies. Quoting Transneft head Nikolai Tokarev, Reuters reported Russian officials have decided they should talk to Saudi Arabia and other Opec countries about possible, coordinated output cuts.
According to some other reports, minister Novak also floated the idea (of output cuts) at a meeting with energy company executives on Wednesday evening. A source briefed on the meeting said those present did not oppose it.
In the meantime, a Gulf source told CNN on Thursday that regional players were “willing to do anything to stabilise the market” and “all options are open.” And that includes a potential emergency meeting in February between Organisation of the Petroleum Exporting Countries (Opec) and non-Opec producers like Russia.
And all this provided impetus to the chatter. Yet to be fair, things are still fluid on the issue.
On Friday, Russian Deputy Prime Minister Arkady Dvorkovich played down expectations, saying the state would not intervene to balance the market.
“We assume our oil sector is private and commercially focused. It is not under control of the state. We have a certain participation interest but the market on the whole is regulated by decisions of individual companies. So it will continue,” he added.
If the period of low oil prices lasts longer, the Russian oil market is capable of adjusting production and investments level on its own. However, he added, “This will not be a focused action of the government.”
And indeed not everyone got excited with the chatter. “There’s nothing new. It’s another part of a stream of news that comes out of Russia and there’s no indication that the Saudis have any desire to do anything,” said Edward Morse, global head of commodities research at Citigroup.
“I really don’t think that has any legs. I think the Saudis would not really pursue this because the real target of the Saudis is the US shale producers,” said Chris Weafer, senior partner at Macro-Advisory in Moscow.
IHS Vice Chairman Daniel Yergin also points out that Iran would have to be on board in order for Opec to be willing to strike any deal. “It’s very hard to see how this works with Iran ramping up production,”
Dow Jones later quoted a senior Gulf Opec official as saying that the Saudis did not ask Russia to cut output by 5 per cent. The official also said the proposal was an old suggestion from Algeria and Venezuela.
“We cannot confirm the rumor,” an Opec spokesperson was also quoted as saying about a possible urgent Opec meeting or on any discussion with non-Opec stake holders. News services quoted unnamed sources as saying Saudi Arabia has no such plan to cut output by 5pc.
All the chatter all around at best seems premature.
Courtesy : Dawn News