Russia vows cooperation with OPEC to keep oil market balanced

Russian President Vladimir Putin and the chairman of the Board of Eni oil and gas company, Emma Marcegaglia, attend an annual VTB Capital ‘Russia Calling!’ Investment Forum in Moscow on Wednesday. (Reuters)
Updated 21 November 2019

Russia vows cooperation with OPEC to keep oil market balanced

  • Moscow not aiming to be world’s No.1 crude producer, Putin tells annual investment forum

MOSCOW: President Vladimir Putin said on Wednesday that Russia and the Organization of the Petroleum Exporting Countries (OPEC) have “a common goal” of keeping the oil market balanced and predictable, and Moscow will continue cooperation under the global supply curbs deal.

OPEC meets on Dec. 5 in Vienna, followed by talks with a group of other exporters, including Russia, known as OPEC+.

“Our (common with OPEC) goal is for the market to be balanced, acceptable for producers and consumers and the most important — and I want to underline this — predictable,” Putin told a forum on Wednesday.

In October, Russia cut its oil output to 11.23 million barrels per day (bpd) from 11.25 million bpd in September but it was still higher than a 11.17-11.18 million bpd cap set for Moscow under the existing global deal. Putin told the forum that Russia’s oil production was growing slightly despite the supply curbs deal but Moscow was not aiming to be the world’s No. 1 crude producer. Currently, the US is the world’s top oil producer.

“Russia has a serious impact on the global energy market but the most impact we achieve (is) when working along with other key producers,” he said. “There was a moment not that long ago when Russia was the world’s top oil producer — this is not our goal.”

Russia plans to produce between 556 million and 560 million tons of oil this year (11.17-11.25 million bpd), Energy Minister Alexander Novak said separately on Wednesday, depending on the volume of gas condensate produced during cold months.

Russia will aim to stick to its commitments under the deal in November, Novak told reporters.

Russia includes gas condensate — a side product also known as a “light oil” produced when companies extract natural gas — into its overall oil production statistics, which some other oil producing countries do not do.

As Russia is gradually increasing liquefied natural gas production (LNG), the share of gas condensate it is producing is also growing. Gas condensate now accounts for around 6 percent of Russian oil production.

Novak told reporters that in winter, Russia traditionally produces more gas condensate as it is launching new gas fields in the freezing temperatures.

“We believe that gas condensate should not be taken into account (of overall oil production statistics), as this is an absolutely different area related to gas production and gas supplies,” he said.

Three sources told Reuters on Tuesday that Russia is unlikely to agree to deepen cuts in oil output at a meeting with fellow exporters next month, but could commit to extend existing curbs to support Saudi Arabia.

On Wednesday, Novak declined to say that Russia’s position would be at upcoming OPEC+ meeting. Reuters uses a conversion rate of 7.33 barrels per ton of oil.


Tumbling oil prices leave Iraq facing a perfect storm

Updated 03 April 2020

Tumbling oil prices leave Iraq facing a perfect storm

  • The price crash means Iraq’s monthly crude revenues were slashed by nearly half from February to just $2.99 billion in March

BAGHDAD: As crude prices plunge, Iraq’s oil sector is facing a triple threat that has slashed revenues, risks denting production and may spell trouble for future exports.

So what are the challenges facing the only significant industry in Iraq, as global oil prices fall to around $25 a barrel?

The price crash means Iraq’s monthly crude revenues were slashed by nearly half from February to just $2.99 billion in March.

The second-biggest crude producer in the OPEC oil cartel, Iraq pays international oil companies (IOCs) about $3 billion quarterly to extract its crude. With oil so cheap, the government is desperately looking to cut costs and delay payments.

Last week, the Basra Oil Company — the state-owned firm coordinating production in the oil-rich southern province — asked IOCs to accept a delay in six months’ worth of payments and cut work budgets by 30 percent, according to letters seen by AFP.

“A delay in first quarter payments is necessary, and we asked for the second quarter just in case,” said Khaled Hamza Abbas, BOC’s assistant director and a signatory to the letter, saying that oil companies had yet to respond.

But IOCs are already taking independent action, according to internal letters seen by AFP.

FASTFACT

90%

Iraq relies on oil revenues for more than 90 percent of state expenses.

Oil superpower ExxonMobil immediately asked subcontractors to “reduce overall cost” with other firms asking suppliers for discounts.

“IOCs are cash-strapped,” a source at the main operator in the south said.

However, the trouble does not stop there.

IOCs expense Iraq at the end of each quarter for what it cost to extract crude, and the Iraqi government pays them in oil.

“With the lower prices, the government would have to use virtually all its crude to pay oil companies and would have barely enough to sell,” a leading Iraqi official said.

Iraq relies on oil revenues for more than 90 percent of state expenses. Its 2020 budget was based on an estimated barrel price of $56, more than twice the current rate.

The spread of the novel coronavirus has severely disrupted rotations of key foreign nationals working at Iraq’s oil fields, risking a drop in the usual 4.5 million barrel per day (bpd) production.

To stem the spread of the respiratory illness, Iraq has shut its airports and imposed a countrywide lockdown until at least April 19, although many expect an extension.

The Gharraf field in Dhi Qar province, which has produced up to 100,000 barrels per day (bpd), is offline after last month’s evacuation of dozens of Malaysian workers by operator Petronas over coronavirus fears, according to a source at the province’s state-owned oil company.

Most foreign oil workers live on the fields in Basra, and are currently stuck there beyond their normal six- to eight-week rotations due to travel bans.

“We’re seeking approvals for an exemption for foreign staff so that we can secure the rotating teams. These companies have internal rules and you can’t keep the teams here for more than two months,” said BOC’s assistant director, Abbas.

A source from a major European oil firm operating in Basra said that a halt to foreign staff rotations would be a bigger threat to production than payment delays.

Britain’s BP, too, would have to trim production if 4,000 British nationals working in the south could no longer travel.

“There are no two ways about it,” a source with knowledge of BP’s operations said.

The third threat is a global drop in oil demand for the first time in a decade, with the International Energy Agency expecting 2020 demand to decrease by 90,000 bpd, a sharp downgrade from forecasts it would grow by more than 800,000 bpd.

“It has no equal in the history that we see such a strong decline in demand and a huge massive overhang of supply at the same time,” IEA director-general Fatih Birol said.

Two countries facing shrinking demands are India and China, where Iraq sells “the lion’s share” of its crude, according to geopolitical analyst Noam Raydan.

China, where the virus first emerged, is struggling through a huge economic slump and India has entered a three-week lockdown.