Gazprom Neft, Russia's 2nd largest oil company, has spoken out against extending the OPEC+Russia production cut
Editor's note: Gazprom is known primarily as a natural gas company but its oil branch Gazprom Neft is actually Russia's second largest oil giant. Recently there has been a lot of chatter that right now Russia counter-intuitively actually prefers a lower oil price right now. We brought you two such stories (here and here) ourselves.
This latest news that Gazprom does not want to extend the OPEC+Russia production cut shows once again that Russian finance and oil men are not uniformly in favor of a higher price right now. Gazprom Neft for one would be happier to dismantle the quotas and see the price fall, but make up for it by bringing more capacities online.
While OPEC is said to be mostly leaning toward a 9-month extension of the production cuts, Russia’s Energy Minister Alexander Novak and major Russian oil companies discussed last week a six-month extension after March 2018, and all but one company said they were ready to extend, Russia’s TASS news agency reported on Tuesday, quoting two sources who had attended the meeting.
A possible six-month extension proposal from Russia is shorter than the market is largely expecting—nine months through the end of 2018. It could also put Russia on a collision course with Saudi Arabia, its key partner in the OPEC/non-OPEC deal to curb production to erase the glut and prop up oil prices.
In early October, Russia’s President Vladimir Putin said that Russia was open to extending the production cut deal, but echoed other officials’ comments at that time that it was too early to decide.
“If we speak about a possible extension, then of course, it should be at least until the end of 2018,” Bloomberg quoted Putin as saying at an energy forum in Russia.
But a month and a half later, with Brent trading above $60 for more than three weeks, there is growing talk and speculation that Russia might walk away from the deal, or try to stall either the taking and/or the announcement of the decision, because it doesn’t see such an announcement as urgent as possibly many of OPEC’s producers.
“Extending the deal was discussed. Everyone except Gazprom Neft agreed, because the company will launch new projects in 2018,” one of TASS sources said, adding that Rosneft—the biggest Russian oil producer led by Putin’s close ally Igor Sechin—did not voice disagreement over extending the cuts.
Last month, a senior Gazprom Neft executive said that the company was ‘holding its nose’ to the production cut deal because it had made the company cut its production growth targets.
Novak is due to meet Russian oil producers again today, and said yesterday that Russia would decide later this month what its position for the Vienna meeting on November 30 would be.
Russian oil firms are said to be balking at a further extension, arguing that their production restrictions are only benefiting others while Russian companies have to cut back on new projects in which they have heavily invested.
Even though there are consultations with oil companies, Russia’s final decision “will still be made by senior officials” and “it might be completely different”, one of TASS’ sources said.
Almost all countries part of the deal have expressed readiness to extend the pact, so the only remaining question is when the decision should be taken—at the meeting next week, or at an extraordinary meeting early next year, a TASS source in OPEC said.