Russia, Saudis Move at a Different Pace as Oil Cuts Scrutinized

Russia and Saudi Arabia head to this weekend’s OPEC committee meeting as the tortoise and hare of a global deal to cut oil supply, with Moscow sticking to a slow and steady pace despite Riyadh’s cajoling.

 

OPEC’s de-facto leader Saudi Arabia publicly prodded the Kremlin to speed up and implement its full 300,000 barrel-a-day production cut by the end of this month, but Energy Minister Alexander Novak reiterated it won’t reach the target before April -- four months into the agreement. While this pace has offset the impact of deeper-than-expected cuts by other OPEC members, the need to show unity means Russia is unlikely to get called out for its inertia, said Daniela Corsini, a Milan-based analyst at Intesa Sanpaolo SpA.

“Confidence in the OPEC/non-OPEC deal is the most important tool to protect crude prices,” Corsini said by email. “Saudi Arabia will not openly criticize poor Russian compliance as it’s not in their interest to scare market participants.”

 

The Organization of Petroleum Exporting Countries and its allies are almost three months into the pact to take 1.8 million barrels a day off the market in a bid to eliminate a global surplus after three years of glut.  After a promising start in January, Russian production flatlined the following month and is now just over half way to the reduction Moscow promised. Compliance from the 11 non-OPEC participants -- estimated at just 64 percent in February -- will come under scrutiny at a ministerial meeting in Kuwait City on Sunday.

The agreement is set to last the six months through June, but several OPEC members are signaling an extension may be necessary. BenchmarkBrent crude dropped below $50 a barrel for the first time since November on Wednesday as swollen U.S. stockpiles and rising shale production offset the impact of the cuts.

Russian output has fallen 160,000 barrels a day from the October level -- a post-Soviet record -- and will fall another 40,000 barrels by the end of this month, Novak said on March 17. He has maintained since the deal was first struck that the target will be reached no sooner than April.

The Russian cuts are “slower than what I’d like,” Saudi Energy Minister Khalid Al-Falih said in an interview with CNBC March 7. “But I think we are patient and we will see where we are in May and take it from there.”

Targeting Growth

The structure of the Russian oil industry makes it harder for the country to deliver on a supply pledge, according to Chris Weafer, a Moscow-based senior partner at Macro Advisory.

“Unlike OPEC, where you have only one national oil company, the Russia industry is fragmented and, therefore, its collective actions are unpredictable,” he said.

Even as Russia reduces output, producers are preparing for growth, according to Ildar Davletshin, an oil and gas analyst at Renaissance Capital. “Capex guidance is up for most companies so no one is cutting spending,” he said.

Extending Deal

Companies are achieving lower volumes by slowing down electric submersible pumps, closing more wells for workovers, and fracking less. They likely plan to make up for missed production volumes in the second half, Davletshin said.

Those plans may have to be abandoned if the supply deal is extended. OPEC meets on May 25 to decide whether to continue. Al-Falih has said the group would prolong the deal if oil stockpiles remain high, and other members including Iraq have expressed their support for an extension.

Russia hasn’t ruled out such a move, Interfax news agency reported Wednesday, citing Vladimir Voronkov, the country’s envoy to international agencies in Vienna. A final decision will depend on Saudi Arabia, it said.

“I don’t have serious reasons to think Russia will abandon the deal, as long as they benefit from higher and stable prices,” Intesa’s Corsini said.

Shoot

Trending News

Walmart signs 5 year Cloud tech partnership with Microsoft

Flipkart adds recharge, travel tabs

Unhappy with WhatsApp reply, Indian govt may send second notice

Cars24 closes $50M funding to fuel its expansion plans

HCL Technologies may buy back shares worth Rs 5,000 Cr at Rs 1,150 apiece

Ola starts making money on each ride, inches closer to profitability

Zomato debuts loyalty rewards program PiggyBank

Chinese fintech major WeCash plans India foray with a consumer lending product

Former eBay CEO Simon Smith to drive Ola's operations in Australia

Lending products to form 20% of Flipkart’s growth: Ravi Garikipati

How Automation Anywhere joined the billion-dollar-plus club

Amazon to push hyperlocal app for Big Prime Day Sales

Are you a business or an entrepreneur thinking to collaborate ?

Here's how Amazon is winning the online retail game. Again.

DIY investment app Sqrrl raises $1 million

Flipkart all set for a fashionable makeover

Why Amazon’s Flipkart bid is just not high enough

Selling without MRP, expiry dates to cost etailers

TCS hits $100Bn market cap: A new phase for India Inc?

Snapdeal posts Rs 4,647 crore net loss in 2016-17

Flipkart-Walmart deal: What it means for the etailer and the whole industry

NCLAT stays CCI penalty of Rs 136cr on Google in search bias case

Agritech startups Sabziwala and LivLush merge their business under new entity Kamatan

Avail Finance lands $17.2M from Matrix Partners & Ola, Freecharge and Flipkart founders

RBI suggests tax sops, self-regulation to build fintech space

Swiggy hires new CEO for its Access Service, gets new CFO

Logistics company Delhivery registers 44% increase in FY17 revenues

WeWork to acquire one of the oldest social networks, Meetup

Qualcomm rejects Broadcom's $103 billion offer

EasyRewardz gets $2 million Series-A funding

'Anemic' iPhone 8 demand drags Apple shares lower

Lending platform Lenden Club gets Rs 3.5cr in Equity Investment

On festive sales, Flipkart says 65% clients from Tier-II cities