Putin's Reward For Doing A Deal With OPEC Overshadowed By Risks

(Bloomberg) -- Neither a recession nor a collapse in revenue has yet been enough to convince Russian President Vladimir Putin that it’s time to join with OPEC in cutting oil output to boost prices. His reasons may be pragmatic rather than political.

As Russia’s oil minister meets his Saudi Arabian counterpart in Doha on Tuesday, the world’s second-largest crude producer faces numerous obstacles in cooperating on such a deal even if Putin decides it’s in the national interest. Reducing the flow of crude might damage Russia’s fields and pipelines, require expensive new storage tanks or simply take too long.

So far Russia’s top oil official have offered mixed signals. Energy Minister Alexander Novak has said he could consider reductions if other producers joined in. Igor Sechin, chief executive officer of the country’s largest oil company Rosneft OJSC and a close Putin ally, said last week in London that coordination would be difficult because no major producer seems willing to pare output.

“The history of relations with OPEC suggests that Russian companies are not keen to cut production,” James Henderson, an oil and gas industry analyst at the Oxford Institute for Energy Studies, said by phone. “There are certain practical difficulties, and the companies would rather somebody else did that, and they could benefit once the price goes up.”

Oil surged the most in seven years on Feb. 12 after United Arab Emirates Oil Minister Suhail Al Mazrouei said producers are ready to work together and won’t make cuts unless there’s complete cooperation, according to a Sky News Arabia report. Brent crude, the international benchmark, remains about 70 percent below its 2014 peak, trading for $34.62 a barrel at 11:45 a.m. Singapore time on Tuesday. Russia’s economy contracted by 3.7 percent in 2015 and may shrink by 0.8 percent this year, according to economists surveyed by Bloomberg.

Frozen Pipelines

In Siberia, Russia’s main oil province, winter temperatures can go below minus 40 degrees Celsius (minus 40 Fahrenheit). That’s a challenge for anyone thinking of turning off the taps.

The oil and gas that flows from wells always contains water, so once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked for more than 10 years in the Russian oil industry, said by e-mail. The problem goes away in summer, but there’s still the risk of a long-term reduction in output because a halted reservoir can become polluted with salts and residues, he said.


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Copyright 2016 Bloomberg News.

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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Esperanza Castro | Feb. 16, 2016
Very well informed and clear insight into a complicated and delayed decision from OPEC. Nice to see objective arguments that helps to understand better the position of different players, in this case Russia.


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