Russia Reported to Consider Joining OPEC Oil Output Cuts in 2015

Oil Production Cuts
An employee uses a walkie-talkie at an oil refinery operated by OAO Bashneft in Ufa, Russia. Russia’s government is considering joining OPEC production cuts next year to boost oil prices, Kommersant reported. Photographer: Andrey Rudakov/Bloomberg

Russia’s government is considering joining OPEC production cuts next year to boost oil prices, Kommersant reported. There isn’t consensus to proceed with the measure, it said.

The world’s biggest crude oil producer may agree to reduce output by 15 million tons, or about 300,000 barrels a day, in return for 70 million tons of OPEC reductions, the Moscow-based newspaper reported, citing people close to the government that it didn’t identify. Russia’s 2015 output estimates will be available later this year, Olga Golant, a spokeswoman for the Energy Ministry, said in response to questions from Bloomberg News. She declined to comment on the possibility of cuts.

Russian government officials held talks with Saudi Arabia, OPEC’s largest member, and Venezuela last week to discuss oil prices that have plunged into a bear market amid the highest U.S. production in three decades. Saudi Arabia agreed on Nov. 21 to cooperate with the government in Moscow over oil markets, without making a public commitment to limit output.

“Russia might agree to cut output if OPEC reduces production by 1.5 million barrels a day,” Olivier Jakob, managing director of Zug, Switzerland-based consultant Petromatrix GmbH, said by e-mail today. The government may struggle to get companies producing oil in Russia to participate in reductions, he said.

OPEC Meeting

OPEC members meet in Vienna on Nov. 27 to discuss output levels following a 30 percent drop in the price of Brent crude, the international benchmark, since June. The grade for January settlement fell to $76.76 a barrel on Nov. 14, the lowest in four years, and traded at $80.56 a barrel on the ICE Futures Europe Exchange in London at 9:48 a.m.

A production cut of about 1 million barrels a day is needed to put oil supply and demand back in balance and lift Brent back to an average of about $90 a barrel next year, Societe Generale said today in an e-mailed report. Without a supply reduction, Brent could fall to $70 a barrel and West Texas Intermediate, the U.S. benchmark, as low as $60, it said.

Saudi Arabia and Russia, which together produce 25 percent of global oil, agreed on Nov. 21 that the market “must be free of attempts to influence it for political and geopolitical reasons,” Russian Foreign Minister Sergei Lavrov said after talks in Moscow. Where supply and demand are “artificially distorted,” oil exporters “have a right to take measures to correct these non-objective factors.”

Venezuela Talks

Lavrov and Saudi Arabian Foreign Minister Prince Saud Al-Faisal said in a joint statement that they’ll coordinate on “issues” affecting the energy and oil markets, without giving more detail.

Russia and Venezuela discussed efforts to stop the slide in oil prices on Nov. 17, Russian Energy Minister Alexander Novak told reporters the following day. The countries will meet again in Vienna on Nov. 25, he said. Venezuela is willing to cut its production as part of broader international agreement, the country’s Foreign Minister Rafael Ramirez told reporters in Caracas on Nov. 20.

“At various points between 1998 and 2002, a number of non-OPEC countries pledged production cuts as part of a package of reductions,” Morgan Stanley said in an e-mailed report. “If the situation in oil markets were to become dire, such an agreement is possible, and would be in the interest of oil-exporting nations.”

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