Russia and Oil Industry Bosses Discuss Whether to Work With OPEC

  • Russian oil companies discussed issue with Energy Ministry
  • Meeting with OPEC may be held in February, Transneft CEO Says

The Russian government and oil company bosses discussed whether the nation should coordinate production with the Organization of Petroleum Exporting Countries to revive slumping prices.

Energy Minister Alexander Novak and the heads of Russia’s biggest oil companies discussed the possibility of working with OPEC, the ministry said in the statement on Wednesday. The discussions will continue as no decision was taken, Bashneft PJSC’s chief executive officer, Alexander Korsik, one of the meeting’s participants, told reporters after the event.

Russia, which relies on energy for more than 40 percent of its budget revenue, has repeatedly stated its goal of keeping crude production stable even as prices tumble. Still, the slump in prices to a 12-year low has put the country under increasing financial pressure. The Finance Ministry says the nation’s budget deficit, already at a five-year high in 2015, may widen this year as the rout deepens.

Deputy Prime Minister Yury Trutnev told President Vladimir Putin on Wednesday that there was a series of meetings with other governments last week on the issue of oil prices during the World Economic Forum in Davos, Switzerland. Oil exporters are talking about coordination because the current price is “unacceptable” for justify spending on exploration and field development, Trutnev said.

Putin Spokesman

Nevertheless, the Kremlin talked down the prospects for a deal earlier on Wednesday. Putin’s spokesman Dmitry Peskov told reporters that while consultations with other oil-producing countries were regular, there wasn’t any "specific discussion on coordination of actions" on output.

There are significant obstacles in the way of an agreement with OPEC. Saudi Arabia, the group’s biggest producer is keen to defend market share and Russia’s inability to cut production in winter months makes coordination difficult.

The two countries’ opposing views on Syria, where Russia is President Bashar Al-Assad’s closest ally and Saudi Arabia wants him gone, present another significant diplomatic obstacle.

The participants discussed the need for discussions with Saudi Arabia on prices and the possibility of participating in talks with OPEC, Transneft CEO Nikolay Tokarev, another participant of the meeting with government, told reporters. It’s possible Russia will participate in talks with OPEC next month, he said.

Global Surplus

With OPEC effectively abandoning its output ceiling in December, Russia pumping near record levels and U.S. shale fields proving more resilient than forecast, the global surplus has continued to swell and prices have continued to fall.

OPEC policy makers have said that cuts to re-balance the global oil market, where surplus supply has seen prices fall 33 percent over the last year, must be coordinated by non-OPEC members.

On Monday, OPEC Secretary-General Abdalla El-Badri called on all countries, both inside and outside the group, to join efforts to revive oil prices. "It should be viewed as something OPEC and non-OPEC tackle together," he said in London.

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