Russia’s Sechin ups pressure on Putin to end OPEC oil deal

US energy expansion a strategic threat: Rosneft head

MOSCOW, Feb 10, (RTRS): Igor Sechin, head of Russian oil giant Rosneft and one of Vladimir Putin’s closest allies, has written to the Russian president saying Moscow’s deal with OPEC to cut oil output is a strategic threat and plays into the hands of the United States.

The letter did not say whether the agreement in place since 2017 between the Organization of the Petroleum Exporting Countries (OPEC) and other large oil producers led by Russia to cut output should be extended or not.

But according to two well-placed industry sources, the letter was a clear signal to other senior Russian officials involved in energy policy that Sechin wants the deal to come to an end.

There is no guarantee Putin will back Sechin’s view because the president sees the pact with OPEC as part of a much bigger puzzle involving dialogue with OPEC’s leader Saudi Arabia over Syria and other geopolitical issues.

“The letter is a threat to the deal extension. But anyway, Putin is the ultimate decision maker,” one of the sources said.

Reuters has seen a copy of the letter with no date or header. A government source said it was sent at the end of December.

The so-called OPEC+ deal has helped oil prices double to more than $60 per barrel. It has been extended several times and, under the latest deal, participants are cutting output by 1.2 million barrels per day (bpd) until the end of June. OPEC and its allies will meet on April 17-18 in Vienna to review the pact. Should Russia abandon the deal, it would result in a steep oil price crash or force Saudi Arabia to carry most of the burden of cutting output to continue propping up global crude prices. Riyadh has said it will not do this alone.

A price crash would deal a severe blow to US oil firms as they operate fields where it is more expensive to extract oil, but would benefit the broader US economy.

The United States, which overtook Russia and Saudi Arabia as the world’s biggest oil producer last year, is not participating in the output cuts.

US crude oil output is expected to rise to a record of more than 12 million bpd this year and climb to nearly 13 million bpd next year, the US Energy Information Administration said on Tuesday.

Sechin has been the only Russian official to consistently oppose the OPEC deal since the Kremlin endorsed the plan, saying it has allowed US clout to rise significantly.

“The participants of the OPEC+ agreement have actually created a preferential advantage for the USA – that sees raising its own market share and the seizure of target markets as its primary task – which has become a strategic threat to Russia’s oil industry development,” the letter seen by Reuters says.

“The key strategic challenge which the domestic oil industry is faced with today is the further decline in Russia’s market share, despite the availability of quality recoverable oil reserves, necessary infrastructure and personnel,” it said.

Rosneft, Russia’s largest oil producer, has been the main contributor to the country’s share of cuts. Rosneft has signalled that its oil production may increase by 3 percent to 4.5 percent this year, subject to OPEC agreements.

Sechin, who worked closely with Putin in the mayor’s office of St Petersburg in the 1990s, has long been sceptical of OPEC’s ability to regulate oil markets and has opposed output cuts before.

Former Saudi energy minister Ali al-Naimi said in his 2016 book “Out of the Desert” that Sechin told him in a meeting with several oil ministers in Vienna in 2014 that Russia was not in a position to cut production.

In the book, Naimi wrote that he then gathered his papers and said, “so I think the meeting is over”.

The first attempts to forge an OPEC-Russia output deal fell through that year. It took another two years of talks and Saudi Arabia replacing its oil minister to clinch a deal.

Sechin’s letter also reflects growing tension within Russia’s government over the oil production agreement.

The head of Russia’s sovereign wealth fund, Kirill Dmitriev, one of the main architects of Russia’s agreement with OPEC, told Reuters in January that he saw no reason to abandon the pact, despite a steep rise in US output.

Dmitriev said US oil output would decline only if prices fell to $40 per barrel but if that happened it would also cause major damage to the Russian economy, which relies on oil and gas exports for more than half its budget revenues.

International Monetary Fund Managing Director Christine Lagarde (right), gestures at moderator Richard Quest, while speaking during the World Government Summit in Dubai, United Arab Emirates on Feb 10. Lagarde on Sunday warned that the British exit from the European Union means

Britain ‘will never be as good as it is now’ in terms of its economy. (AP)

to decide on interest rates on Thursday.

The bank, which is aiming for inflation of 13 percent plus or minus 3 percentage points, last moved rates in March, slashing the overnight deposit and lending rates by 100 basis points each to 16.75 percent and 17.75 percent respectively.

It said after its December meeting that policy rates were in line with “achieving targeted disinflation”.

Radwa El-Swaify, head of research at Pharos Securities Brokerage, agreed that food and beverages were the main reason for the rise in inflation.

“What is happening is price adjustment by manufacturers with the beginning of the new year to adjust profit margins,” she said.

“Do not forget that manufacturers’ profit margins fell from July 1 with the reduction of subsidies, and some did not raise prices then, fearing a decline in sales.”

Egypt’s last round of fuel and electricity subsidy cuts in June, as well as an increase in metro fares in May, led to a surge in inflation.