Russian President Vladimir Putin reportedly said on November 15 that Moscow is committed to continuing its cooperation with the Organization of Petroleum Exporting Countries (OPEC) and is satisfied with current oil prices of around $70 per barrel. Russia Energy Minister Alexander Novak signaled earlier that Russia did not believe the oil market would face serious oversupply next year.
On November 15, Brent crude futures rose 50 cents to settle at $66.62 a barrel. US West Texas Intermediate (WTI) crude futures rose 21 cents to settle at $56.46 a barrel, Reuter reported, adding that on November 13, US futures marked their steepest one-day loss in more than three years due to ongoing worries about weakening global demand and oversupply. WTI also posted a record 12th straight decline.
OPEC is reportedly considering a cut of up to 1.4 million barrels per day next year to avoid an oil price crush.
Chris Weafer, senior partner at Macro-Advisory in Moscow, reminded that, as was expected, Russia voiced support for OPEC at the meeting on November 11 but did not agree to take part in further production cuts. “That is an option which remains open in the future but, in reality, the price of Brent would have to fall into the $50s per barrel before it again becomes a serious topic in Russia,” he told New Europe.
He explained that the Russian government’s balance sheet is in much better shape today than it was in 2016. The budget looks set to record a surplus of over $20 billion even after the recent price dip, he said.
“The federal budget will balance at approximately $53 per barrel this because of the Fiscal Rule and the weak ruble. It means that the government is under much less pressure to participate in any actions to try and boost the price unless it approaches the breakeven figure. For 2019 the breakeven figure is expected to be $50 per barrel, he said.
Weafer explained that major oil companies appear to be opposed to a new round of production cuts. “They moved quickly to restore production when the previous OPEC-Russia deal ended in the spring and several have announced plans to boost investment spending to add new production,” he said.
The Russian government is unlikely to put the same pressure on the oil companies to comply with a new production agreement because it is much more focused on raising extra taxation from the oil sector in order to help fund the so-called May Decrees investment programme,” Weafer said, referring to the objectives outlined in Putin’s main development program for his fourth term in office. This is the plan to spend up to $350 billion to help improve infrastructure, to fund digitalization of the economy, to help create better paid employment in new sectors of the economy and to improve such areas as healthcare and other social programs.
Weafer also noted that Russian oil executives and government officials have stated that cutting production too soon may support or raise the oil price but that will only help US producers to gain market share at the expense of Russia and OPEC. “Russia is in no mood to do the US producers any favours especially when the US Congress is targeting Russia’s energy sector with more sanctions,” he said.
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