Ole Hansen
The Russian and Saudi energy ministers met ahead of Opec’s late-November deal, but Saxo Bank head of commodity strategy Ole Hansen says the future for oil remains cloudy.
Article / 05 September 2016 at 10:00 GMT

Russia is only a bit player in oil talks

Russia oil and gas expert
United Kingdom
  • Putin talks up possibility of production freeze ahead of Algiers conference
  • Reality is Russia struggling to get on negotiating table at Opec-dominated summit
  • Rigidity of Russian production methods means it can't switch quotas easily
  • Russian energy minister Novak's comments somewhat at odds with Putin


Well, shall we let the Russians in? Photo: iStock

By Nadia Kazakova

The devil as usual is in the detail and markets do not have time for detail. It could explain why the interview President Vladimir Putin gave to Bloomberg (recorded on September 1, made public on September 2) made such a stir and lifted oil prices. 

A stall in the Russian oil output (down 1.6% month-on-month and up 0.1% year-on-year) and a fall in exports in August (down 6.5% m/m and 2.6% y/y) might have also been taken as a positive sign for the oil price. However, flattening output and a drop in exports might be a temporary blip due to maintenance at the Sakhalin-1 PSA fields in Russia's Far East. 

Russian crude oil and gas condensate output and exports in 2016, million b/d

In his interview, Putin (among many other things) was talking about a possible oil production freeze (with an out-out for Iran) and taking the subject up during his meeting with Saudi's deputy crown price during the G20 meeting in China. 

Presumably, markets saw it a signal that some sort of agreement could be on the table by September 26-28 , when the International Energy Forum takes place in Algeria. 

It is, however, highly unlikely. Prior to Putin's interview, the Russian energy minister Alexander Novak gave some an earnest (probably too earnest) assessment of the chances of any agreement in Algeria. 

Firstly, the forthcoming energy forum in Algeria is a forum of some 73 member states, with Opec members meeting informally on the sidelines. Russia is not officially invited to Opec discussions but its energy ministers might have some bilateral meetings with Opec members.

Saudi Arabia, Venezuela and Iran have given preliminary agreements to such talks. 

Secondly, Novak said that Russia expects no agreement on output freeze in Algeria. The talks might be the first step to some further discussions. According to Novak, agreements are usually thoroughly prepared well ahead of time. There seems to be nothing of the sort in the making at the moment.

It seems that Russia is struggling to get itself to the negotiating table. The problem for Russia is that it might be seen as a bit player in the grand scheme of things. The country has little flexibility in managing its output, there is little spare capacity or ability to cut it down and then bring it back up.

Officially, Russia's oil output level in 2016 (and in 2017) would be around 533 million tons (10.7 million barrels/day). The actual year-to-date average (January to August 2016) is 10.85 million barrels of oil equivalent/day.  

Looking at Russia's oil output in August, one can see that the overall picture did not change much from previous months. The largest oil producers Rosneft and Lukoil are struggling to keep output above last year levels, while smaller, more agile companies doing most of the hard lifting to keep the overall oil output above the last year.

Russia's crude oil and gas condensate output by company, million b/d

A month-on-month dip of output in August might be down to the planned maintenance at Sakhalin-1 PSA project . It probably accounted for most of the  missing 138,000 b/d of oil output in August. All being well, the Russian output should be back to over 10.8 million b/d in September.


Russian oil production quotas cannot be easily raised or cut. Photo: iStock

— Edited by Martin O'Rourke

Nadia Kazakova is an oil and gas expert on Russia


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail