Yemisi Izuora/Agency Report
OPEC’s oil freeze strategy is about to face serious challenge following rejection of oil cut by Russia’s energy giant Rosneft.
Igor Sechin, Russia’s most influential oil executive and the head of state-controlled energy giant Rosneft, said his company will not cap oil production as part of a possible agreement with OPEC.
His comments underline how difficult it is for Russia to get its oil companies to freeze or cut output as part of a potential deal with the Organization of the Petroleum Exporting Countries designed to support oil prices.
President Vladimir Putin told an energy congress on Monday that Russia was ready to join a proposed OPEC cap but did not provide the details.
“Why should we do it?” Sechin, known for his anti-OPEC position, told Reuters in Istanbul on Monday evening, when asked if Rosneft, which accounts for 40 percent of Russia’s crude oil output, might cap its production.
Earlier on Monday, Sechin told reporters that Rosneft planned this year to raise its oil production, already the world’s largest among listed producers, above the 203 million tonnes (4.1 million barrels per day) it produced in 2015.
Sechin said he doubted some OPEC countries, such as Iran, Saudi Arabia and Venezuela, would cut their output either: “Try to answer this question yourself: would Iran, Saudi Arabia or Venezuela cut their production?”
OPEC’s oil output is likely to reach its highest in recent history in September, as Iraq boosted northern exports and Libya reopened some of its main oil terminals.
There have been several attempts in the past for Russia and OPEC to join forces to stabilize oil markets and those efforts have never come to fruition, however.
Russia’s oil industry has argued for years that it cannot cut output to support falling global prices for purely technical reasons linked to the climate in Siberia; in reality it can – as long as it has the political will.
Putin could in theory force companies to cut their production or postpone the launch of new oilfields.
Russia was already pumping at the post-Soviet record high of 11.1 million barrels per day in September thanks to a recovery in oil prices which triggered exploration drilling activity.
“Given the propensity of OPEC and other producers to talk up prices, and the history of failed deals among OPEC and between OPEC and Russia, we would continue to treat the news somewhat carefully for the longer term,” Sberbank CIB said.
The Russian oil landscape is dominated by a handful of players second-biggest firm, private Lukoil, private producer Surgut, state-owned Gazprom Neft and Tatneft.
The companies plan to raise production by about 1.6 percent on average in 2017, according to their forecasts and Reuters calculations as they benefit from a weaker rouble and cheaper costs at home.
Sechin has long argued that any oil price increase as a result of joint actions by OPEC and non-OPEC members will allow the United States to resume production growth from high-cost shale deposits.
“The Americans want it most ($50 per barrel) as the shale oil projects become profitable with such a price. And $60 (per barrel) will result in more shale oil projects,” Sechin told Reuters.