Call for transition after output curbs
Rosneft chief says Riyadh and Moscow must work together to avoid glut
The head of Russia’s state-run oil company Rosneft said collaboration between Russia and Saudi Arabia, the world’s two biggest oil producers, will have to extend well beyond the official end to Opec-led production cuts to manage the transition back to a normal crude market.
Speaking in Berlin yesterday, Igor Sechin said the producers need to discuss how to engineer a “smooth transition” after the Opec-led output curbs expire to ensure the “market doesn’t suffer”.
He said a release of large volumes of oil on to the market could lead to such volatility that “consumers will be hit hard”. He said producers needed to prevent “dramatic consequences for the market”.
Opec and Russia, together with other producers outside of the cartel, agreed late last year to cut output by almost 1.8m barrels a day in the first six months of 2017, in a bid to shrink excess stockpiles that had put pressure on prices.
Prices recovered slightly but hit a ceiling after inventories remained bloated and US shale producers started pumping more oil. Brent crude, the international benchmark, fell below $47 a barrel earlier this month, erasing the gains since global producers agreed the supply deal.
Saudi Arabia and Russia this week backed an extension of the output curbs until March, saying they would do “whatever it takes” to reduce oil stockpiles and balance the market. The move has to be officially agreed at next week’s meeting of Opec ministers in Vienna.
The statement from Saudi Arabia and Russia’s energy ministers surprised oil market observers, sending oil prices up by 4 per cent to above $52 a barrel. Most oil industry watchers had only expected an extension until the end of 2017.
Mr Sechin, a longstanding ally of President Vladimir Putin, has traditionally been sceptical of Opec, and argued that Russia should stick to its own strategy and protect its market share.
Last year he told an energy conference in London that he opposed the idea of Russia working with the producers’ cartel to try to bolster prices through coordinated cuts in production.
But he has changed his tune over the past year. Yesterday he said Rosneft would comply with the agreed production cuts and was “comfortable” with the nine-month extension.
The company would apply the curbs to greenfield sites and leave output at its older fields unchanged, he said, adding reducing production there risks leading to a loss of pressure in the reservoir which could cause “a loss of resource”.
Mr Sechin said Rosneft would have more cash for dividends in three to four years’ time, after it completed investment programmes such as modernising its refineries. He said a higher dividend, coupled with the lifting of western sanctions against the company, would raise its market capitalisation to $130bn-$150bn. It is currently about $55bn.