- 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
Source: www.tass.ru, www.interfax.co.uk, www.reuters.com
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
Source: www.tass.ru, www.reuters.com
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