ICEC

Russia’s history of working with OPEC to cut oil production is awful

Prices for oil have surged over the past four trading sessions in a row, partially fueled by comments from Russia, in particular.

Moscow has implied that a coordinated cut in crude-oil production CLH6, +1.57% LCOH6, +2.48% is inching closer to becoming a reality.

But optimism may be unfounded if you look at Moscow’s lack of cooperation with the Organization of the Petroleum Exporting Countries over the past two decades.

Russia, which is under crippling sanctions linked to its military intervention in Ukraine in 2014, is among the world’s largest oil producers and exporters. According to the most recent report from the U.S. Central Intelligence Agency dated 2013, Russia ranks as the second biggest oil exporter, just behind OPEC swing-producer Saudi Arabia.

This week, Russia’s energy minister Alexander Novak has said his country, which isn’t a member of OPEC, may discuss 5% output cuts at a meeting in February with the members of the oil cartel.

A senior OPEC official, however, has denied the claim and group member Iran said it wouldn’t immediately participate in any reductions, and why would the country coming fresh off tough economic sanctions of its own.

History shows that Russia’s past collaborations with OPEC have been “fraught with tensions over market share,” according to energy-and-commodities information provider Platts. “Pressured by OPEC to help support oil prices, Moscow has enacted some cuts [in the past], but the reductions have been limited and brief.”

Here’s some highlights as Friday by Platts FACTBOX:

March 1998

OPEC agrees to cut output by 2.6 million b/d to support prices after crude drops to $12/b from more than $22/b in January 1997. As part of an OPEC/non-OPEC output cut agreement, Russia agreed to reduce exports by 61,000 b/d, but this was largely symbolic given its export level of around 2.4 million b/d.

Eventually, Russia’s crude production fell by 70,000 b/d, or 1% year on year, to 6.1 million b/d in 1998. At the same time, its exports rose by around 100,000 b/d, or 3.5% on year, to 2.4 million b/d.

March 1999

As prices plummet to $10/b, OPEC agreed a new output cut of 2 million b/d, with non-OPEC Russia, Oman and Mexico also agreeing to contribute 300,000 b/d of the total. Russia agrees to cut oil production by 100,000 b/d.

Despite the agreement, Russia’s output rose by 50,000 b/d to 6.13 million b/d in 1999. Its crude exports to international markets, however, fell by 70,000 b/d to 2.33 million b/d in 1999 as Russia redirected some volumes to the FSU [floating storage unit] markets.

November 2001

After pressure from Saudi Arabia, Russia offers to cut production by just 30,000 b/d. It later raises the offer to 50,000 b/d.

December 2001

Following continued pressure by OPEC to help support prices, Russia agrees to cut exports by 150,000 b/d during Q1 2002. Despite the deal, Russian production was little changed over the quarter at 7.36 million b/d, according to U.S. EIA figures.

November 2014

As prices started to fall again from more than $115/b in mid-June to below $70/b in November, contacts between Russia and OPEC resumed. Russia took part in a number of meetings with OPEC and non-OPEC countries, but they didn’t result in any sort of agreement, with the participants repeatedly denying special actions to balance the market were considered.

Source: MarketWatch

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