We’re less than three weeks away from a much-ballyhooed meeting of most of the world’s petrostates in Doha to try and hammer out an agreement to freeze output at current levels, and we’re seeing plenty of posturing in the run-up. The latest comes courtesy of the Russian state-owned oil company Rosneft, which according to the country’s minister of natural resources intends to cut production. Reuters reports:
Rosneft is set to lower oil output, Russian Natural Resources Minister Sergei Donskoi said on Tuesday, ahead of a meeting of leading global oil producers in Doha on April 17 to discuss an output freeze to support weak oil prices. […]
Asked to comment on how a global oil production freeze would impact Russia, Donskoi said Russia’s energy firms had adjusted their production plans: “Rosneft, as it told (us), is planning to lower (output)”.
If that sounds curious, it’s because it is—production cuts aren’t on the table at the meeting later this month, just a freeze at current levels. One explanation for Rosneft’s supposed plan to scale back output could be one of necessity: just last week we wrote about how the Russian state-owned oil firm has been running the Red Queen’s race lately, having to increase the amount of wells it’s drilling in its massive but maturing western Siberian oil fields just to keep production stable. Rosneft’s production looks set to tail off in the coming years, regardless of the price of oil, but if Moscow can somehow position this as a conscious decision—as a part of a plan coordinated with other petrostates to help combat the global oversupply in order to induce a rebound in prices—it might be able to wring some worth out of this weakness.
But OPEC isn’t looking particularly likely to keep its supply contributions down. As Reuters reports, the cartel’s collective production rose 100,000 barrels last month, thanks largely to increased production from Iraq and Iran:
The biggest rise came from Iran following the lifting of Western sanctions in January. Tehran, which wants to recover market share it lost under sanctions, has said it will not take part in the production freeze. Iran has increased output by 230,000 bpd since December, according to Reuters surveys. Iranian officials say the increase in supplies is much larger.
Iraq, OPEC’s largest source of supply growth in 2015, managed to raise output. An increase in southern exports to what may be a new record in March offset disruption to flows along a pipeline carrying oil from the Kurdish region.
These aren’t encouraging numbers for the petrostate freeze plan, especially when you consider the global market is already facing a large glut of crude. If trends continue, by the time the April 17th meeting rolls around OPEC output will be even higher, which will necessarily dilute the impact any commitment to keep levels as they are. Consider too that Iran has no intention of putting a lid on its own supplies—in fact just the opposite, as it hopes to boost production by as much as one million barrels per day by the end of the year, now that Western sanctions have been lifted.
Taken together, it’s hard to see whatever freeze plan these petrostates cobble together later this month inducing much of a price rebound. But as we’ve already seen, that won’t stop the parties involved from talking up strategy because, as we’ve already seen, merely discussing the plan can be enough to move the market.