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Crude Economics
Russia Really Doesn’t Want to Cut Oil Output

OPEC Secretary General Mohammad Senusi Barkindo would like nothing more than Russia’s cooperation in the cartel’s proposed production cuts, set to be discussed in Istanbul this weekend ahead of OPEC’s semi-annual meeting this November. He plans to meet with Russian Energy Minister Alexander Novak to see if the Kremlin might join its fellow petrostates in cutting away at the oversupply that has dogged global crude prices over the past 28 months. The WSJ reports:

Non-OPEC producer Russia has rarely joined efforts to bolster oil prices and most recently said controlling output would be difficult because a large part of its production is outside state hands.

Russian oil production has been at or near post-Soviet records in recent months, and the government relies heavily on oil revenue. But Russian President Vladimir Putin has said his country should consider joining limits on production with OPEC.

But Novak has in the past poured cold water on the idea of Russia constraining its output in coordination with OPEC. After Venezuela’s oil minister openly called for Moscow’s cooperation last week, Novak responded by saying ““Russia will carefully consider those proposals which will be eventually drawn up…But our position is keeping the volume of production at the level that has been reached.”

Novak followed that up with another rejection of the idea of production cuts on Friday afternoon. The WSJ reports:

Oil prices eased on Friday after Russian energy minister Alexander Novak said he wasn’t committed to reaching an agreement on production cuts in a meeting with key members of the Organization of the Petroleum Exporting Countries in Istanbul next week.

…Mr. Novak’s comments were enough to reverse the recent oil price rally, which had almost threatened to push Brent through the $53-a-barrel barrier.

Remember, the only thing petrostates care more about than the price of oil is their share of the global market. Don’t hold your breath waiting on the Kremlin to hold hands with Saudi Arabia, Iran, Iraq, & co. and sing kumbaya.

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  • LarryD

    And this is why cartels tend to be unstable. The self-interest of members and non-members alike is: we keep producting while the rest of you cut back to raise prices.

  • Kev

    The truth is Russia simply cannot cut its oil output. Major oil companies in Russia are public, and answer to their numerous shareholders, so they cannot just reduce production because the government wants them to – big difference with Saudi Arabia, where everything is produced by Aramco, which is 100% owned by Saudi family. The very organization of Russia’s oil sector make it impossible for the country to be part some international cartel.

    • GS

      They answer not to the shareholders but to the state and the oligarchs as the agents of that state. Recall the “Yukos” story. Their “responsibility to the shareholders” is a sham, and sometimes a sham could be made useful. Just like stalin ages ago used the sham “elections in Ukraine and Belarus” to get them separate (but of course controlled by him) UN representation.

      • Kev

        There is still a ton of minor shareholders who can cause a lot of trouble for large oil company.

        Comparing modern Russia to Stalin’s Soviet Union is ridiculous. So is labelling oligarchs “agents of the State”. I doubt the State wanted to them to spend billions buying up American real estate and baseball clubs.

        • GS

          I have said nothing ridiculous. The techniques are different, the essence is the same – a Rechtstaat it is not, all of them are on a leash. And how long is that leash, matters not. They know better than to cause trouble – nothing good happens there to the troublemakers.

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