OPEC still needs Russia to prop up oil markets, but the arguments for an even closer relationship with the cartel are weakening. The Kremlin’s two-year-long alliance with the 14-member group has been useful up to a point. On the one hand, oil diplomacy has helped to bolster President Vladimir Putin’s growing regional ambitions in the wider Middle East. On the other, Russia’s economy has also benefited from higher prices buffing up Putin’s financial credentials and popularity at home. Russia’s oil minister and Putin loyalist Alexander Novak is an advocate of the OPEC deal. He said this week oil prices would have dropped to levels below the $27/barrel recorded in 2016 without his country’s commitment to the group’s cuts and pledged his ongoing support for cooperation on supply. It’s a view not necessarily shared by everyone in Russia. Rosneft’s chief executive Igor Sechin has previously been a powerful critic of working with the cartel. “Reports this week indicate that the head of Rosneft continues to oppose ceding market share to the US, which may echo the opinion of others in the oil industry,” said Paul Sheldon, S&P Global Platts Analytics’ chief geopolitical adviser. “First, Russia’s budget still depends on oil revenues, and comments from President Putin in November point to a preference for Brent to remain around $60 per barrel. In addition, the geopolitical benefits of cooperating with US ally Saudi Arabia are likely appealing to the Kremlin.” Falling behind the US Rosneft’s Sechin may have a point. There have been negative consequences for snuggling up closer to OPEC. Bound by the group’s rigid production quotas, Russia’s once fast-growing oil industry has fallen behind its major rival. The country now ranks below the US as the world’s largest producer of petroleum liquids. Its semi-independent producers like Rosneft must now toe the line with output policies conceived in Riyadh and OPEC’s headquarters in Vienna. Rosneft, which pumped almost 4.7 million barrels per day of petroleum liquids on average last year, complained last week it may have to slow down the development of several oil projects to fit OPEC’s strategy of managing the pace of supply in line with demand. Meanwhile, total US production is expected to hit a new record above 13 million barrels per day in 2020, according to the Energy Information Administration. “If US shale production continues to grow at or near its current pace for the next few years, decisions for both Russia and Saudi Arabia will become more difficult down the road,” said Sheldon. Despite the critics, it’s a scheme devised with the help of Russia, and has worked by preventing another collapse in prices. The cartel now hopes it can lock Russia into extending its pact, effectively binding some of the world’s largest producers together into a price regulating powerhouse on a scale not seen since the days of Standard Oil’s monopoly in the US at the beginning of the last century. Together the so called “OPEC+” alliance controls almost half the world’s supply of oil. OPEC in the crosshairs But the pact’s dominant position also brings dangers for Moscow. As with Standard Oil – broken up by US lawmakers in 1911 – OPEC is increasingly seen as an anti-competitive threat to America’s homegrown brand of “laissez faire” free-market capitalism. The proposed No Oil Producing and Exporting Cartels Act – also known as NOPEC – hangs over the group’s future in the US like a dark cloud. The draft legislation has already scared some Middle East petro-states into rethinking their allegiances. Qatar’s decision to leave OPEC in January after 50 years of membership may have been partly influenced by the fear of being frozen out of the world’s biggest economy if NOPEC legislation should become law. Russia is already subject to Western sanctions and its ever closer association with OPEC could easily turn toxic. Moscow’s relationship with both sides of the political divide in Washington is already complicated. Russia faces the prospect of tougher sanctions being imposed by the US as part of mandatory penalties doled out last year. Meanwhile, new US legislation could target Russia’s conventional oil industry, hurting some of the country’s most valuable assets. Ironically, Russia’s OPEC pact has arguably set its oil industry back more than sanctions. Even with its current OPEC deal, Russia needs special treatment due to the structure of its oil industry. Output fell to 11.4 million barrels per day in January, but that’s still 185,000 barrels per day above its output quota of 11.19 million b/d, according to official data. Without Russia’s participation then responsibility will almost entirely fall on Saudi Arabia’s shoulders to ensure the 1.2 million barrels per day of output cuts agreed by OPEC and its allies are delivered. “Russia’s cooperation in the 2016 and 2018 OPEC decisions to cut production were crucial to getting both deals over the finish line. And the short-term economic benefits of doing so the first time were clear, considering that the oil price impact proportionally outweighed Russia’s own loss of supply,” said Sheldon. The same argument holds true today but a longer-term relationship with OPEC has other political and economic consequences that Putin would be reckless to ignore. This article previously appeared as a column in The Telegraph The post Russia’s OPEC alliance brings risks and rewards for Putin appeared first on The Barrel Blog. from https://blogs.platts.com/2019/02/18/russias-opec-alliance-brings-risks-rewards-putin/
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About MeHi I am Robert Keasler 35 years old, I am mine Engineer currently attached with local petroleum exploration company. In free time mostly search for some better opportunity online. ArchivesNo Archives Categories |