Page 10 - FSUOGM Week 12

FSUOGM POLICY FSUOGM
Russia not to blink first in Saudi supply standoff
RUSSIA
Russia will not seek a truce following Saudi moves to flood the market.
RUSSIA will not back down in its standoff against Saudi Arabia over oil market share, viewing the kingdom’s moves to cut prices and increase sup- ply this month as blackmail, Bloomberg reported on March 20 citing sources.
Russia has been accumulating reserves for years to weather this sort of crisis, and Moscow will not be the first to seek a truce in the dispute with Riyadh, the news agency claimed. This sug- gests that both players are committed to a long supply war, whatever the cost.
Oil prices have reached historic lows this month since the collapse of OPEC+ talks follow- ing Russia’s refusal to back additional cuts, with Brent now trading at $25-26 per barrel. While suppliers face off, oil demand has been sapped by efforts around the world to slow the spread of the coronavirus (COVID-19) pandemic.
Russia’s own flagship Urals blend plummeted 22% to $18.64 per barrel on March 18, for north- west Europe delivery, marking its lowest price since February 2002.
While both Putin and Russian Energy Min- ister Alexander Novak have generally supported co-operation with OPEC+ on supply over the pastthreeyears,RosneftheadandcloseKremlin ally Igor Sechin has strongly opposed the pact. By capping its own supply, Russia has simply handed market share to rival shale oil producers in the US, he has argued.
“When you weigh up what has the most influ- ence, I think OPEC+, on the whole, has already lost the significance that we attach to it,” the oil boss said in an interview on the Russia 24 tele- vision channel on March 20. “Other factors are at work – political factors, sanctions, the coro- navirus, the state of the consumer market, the stagnation of the economy.”
However, he added that it was important for the world’s leading suppliers to continue a dialogue.
“These are the largest oil producers; of course we need to co-operate, exchange information; well, strive to obtain mutual benefits by carrying out this work,” he said.
While low prices have dealt a blow to Ros- neft’s revenues, the company also has a backlog of greenfield projects which it is eager to push ahead with now that co-operation with Saudi Arabia is drawing to an end. In the nearer term, the company is reportedly ready to ramp up pro- duction by 300,000 barrels per day (bpd) within a week or two of OPEC+ supply quotas expiring at the end of this month.
Sechin also downplayed the longer-term impact of the coronavirus.
“And there is, of course, an oversupply of pro- duction. From my point of view, coronavirus is really a serious problem that must be taken into
account when balancing the market,” he said. “But there is also no need to dramatise these things.”
Sechin went on to stress Rosneft’s resilience in the face of testing market conditions. Even if it spent nothing on exploration, the company could still maintain its current output for 22 years, he claimed.
“Our operating costs allow us to work in this mode for a rather long time,” he said. “The resource base, in principle, even without addi- tional investments in geological exploration, will allow us to keep producing for 22 years without reducingvolumes.”
The national oil giant produced 230.25mn tonnes (4.62mn bpd) in 2019.
Sechin also took the opportunity to rail against Washington’s use of sanctions, noting that they had hurt Rosneft’s international part- ners more than itself.
“I will not name specific companies now, but there are American companies that have lost a resource base comparable to their own,” he said. “That is, they could be twice as large. They were forced to go out and lose their resource base. The impact on them, I think, is more perceptible than the impact on us.”
ExxonMobil had teamed up with Rosneft to develop Arctic, deepwater and unconventional oil assets in Russia, but sanctions imposed in 2014 forced the US major to withdraw from these projects.
International contractors, manufacturers of drilling equipment and gas turbines, and finan- cial institutions have also lost out because of the US government’s punitive actions, he said.
“Before the sanctions, almost half of financ- ing was provided by American banks – up to $35bn in credit lines. Now it’s zero. They earned up to $4bn per year on interest rates alone. Now it’s zero. Here, please, are the results of these sanc- tions,” the company head said.
The US is reportedly considering additional sanctions on Russia to force it to slash produc- tion and prop up prices. It has slapped sanctions on two Rosneft subsidiaries this year which it accuses of trading Venezuelan oil. ™
P10
w w w . N E W S B A S E . c o m
Week 12 26•March•2020