Rosneft boss calls on Putin to end OPEC deal

Igor Sechin, right, the chief executive of Russia’s top oil producer Rosneft, has a reputation as one of Vladimir Putin’s closest allies. (Reuters)
Updated 09 February 2019
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Rosneft boss calls on Putin to end OPEC deal

  • There is no guarantee Putin will back Sechin’s view because the president sees the pact with OPEC as part of a much bigger puzzle
  • Should Russia abandon the deal, it would result in a steep oil price crash or force Saudi Arabia to carry most of the burden of cutting output to continue propping up global crude prices

MOSCOW: Igor Sechin, head of Russian oil giant Rosneft and one of Vladimir Putin’s closest allies, has written to the Russian president saying Moscow’s deal with OPEC to cut oil output is a strategic threat and plays into the hands of the US.
The letter did not say whether the agreement in place since 2017 between the Organization of the Petroleum Exporting Countries (OPEC) and other large oil producers led by Russia to cut output should be extended or not.
According to two well-placed industry sources, the letter was a clear signal to other senior Russian officials involved in energy policy that Sechin wants the deal to come to an end.
There is no guarantee Putin will back Sechin’s view because the president sees the pact with OPEC as part of a much bigger puzzle involving dialogue with OPEC’s leader Saudi Arabia over Syria and other geopolitical issues.
“The letter is a threat to the deal extension. But anyway, Putin is the ultimate decision maker,” one of the sources said.
Reuters has seen a copy of the letter with no date or header. A government source said it was sent at the end of December.
The so-called OPEC+ deal has helped oil prices double to more than $60 per barrel. It has been extended several times and, under the latest deal, participants are cutting output by 1.2 million barrels per day (bpd) until the end of June.
OPEC and its allies will meet on April 17-18 in Vienna to review the pact.

 

Should Russia abandon the deal, it would result in a steep oil price crash or force Saudi Arabia to carry most of the burden of cutting output to continue propping up global crude prices. Riyadh has said it will not do this alone.
A price crash would deal a severe blow to US oil firms as they operate fields where it is more expensive to extract oil, but it would benefit the broader US economy.
The US, which overtook Russia and Saudi Arabia as the world’s biggest oil producer last year, is not participating in the output cuts.
US crude oil output is expected to rise to a record of more than 12 million bpd this year and climb to nearly 13 million bpd next year, the US Energy Information Administration said on Tuesday.
Sechin has been the only Russian official to consistently oppose the OPEC deal since the Kremlin endorsed the plan, saying it has allowed US clout to rise significantly.
“The participants of the OPEC+ agreement have actually created a preferential advantage for the USA — that sees raising its own market share and the seizure of target markets as its primary task — which has become a strategic threat to Russia’s oil industry development,” the letter seen by Reuters says.
“The key strategic challenge which the domestic oil industry is faced with today is the further decline in Russia’s market share, despite the availability of quality recoverable oil reserves, necessary infrastructure and personnel,” it said.
Rosneft, Russia’s largest oil producer, has been the main contributor to the country’s share of cuts. Rosneft has signaled that its oil production may increase by 3 percent to 4.5 percent this year, subject to OPEC agreements.
Sechin, who worked closely with Putin in the mayor’s office of St. Petersburg in the 1990s, has long been skeptical of OPEC’s ability to regulate oil markets and has opposed output cuts before.
Former Saudi Energy Minister Ali Al-Naimi said in his 2016 book “Out of the Desert” that Sechin told him in a meeting with several oil ministers in Vienna in 2014 that Russia was not in a position to cut production.
In the book, Naimi wrote that he then gathered his papers and said, “so I think the meeting is over.”
The first attempts to forge an OPEC-Russia output deal fell through that year. It took another two years of talks to clinch a deal.
Sechin’s letter also reflects growing tension within Russia’s government over the oil production agreement.
The head of Russia’s sovereign wealth fund, Kirill Dmitriev, one of the main architects of Russia’s agreement with OPEC, told Reuters in January that he saw no reason to abandon the pact, despite a steep rise in US output.
Dmitriev said US oil output would decline only if prices fell to $40 per barrel but if that happened it would also cause major damage to the Russian economy, which relies on oil and gas exports for more than half its budget revenues.

FASTFACTS

The so-called OPEC+ deal has helped oil prices double to more than $60 per barrel. It has been extended several times and, under the latest deal, participants are cutting output by 1.2 million barrels per day until the end of June.


Gulf stocks extend losses on tanker attacks

Updated 32 min 58 sec ago
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Gulf stocks extend losses on tanker attacks

  • Cautious mood among investors as fears of military confrontation rise

DUBAI: Stock markets in the Gulf extended losses on Sunday reflecting a cautious mood among investors following last week’s oil tanker attacks. 

The attacks on the tankers in the Gulf of Oman on Thursday raised fears of a military confrontation in a vital shipping route for global oil supply and heightened tensions between Iran and the US, which have been in a standoff over Iran’s nuclear program. 

The Saudi index had dropped 1.6 percent on Thursday and fell a further 0.6 percent on Sunday after slight gains in early trade. Most Saudi banks were down, despite Sunday’s announcement by Saudi British Bank that its merger with Alawwal Bank was completed. 

HIGHLIGHTS

• Gulf stocks reverse early gains.

• Gulf of Oman tanker attacks dampen investor mood.

• Saudi banks mostly down despite SABB-Alawwal merger.

The two banks have combined to create the country’s third largest lender, becoming a single listed company after regulatory approvals. SABB’s shares shed 0.1 percent. Alinma Bank, however, gained 0.4 percent, and was one of the stocks registering the highest trading volume on Sunday. 

In the UAE, the Dubai and Abu Dhabi indexes fell 0.7 percent and 0.2 percent, respectively. The Dubai market had risen earlier in the day, boosted by DAMAC Properties and Union Properties, which closed up 2.2 percent and 0.5 percent, respectively. But heavyweight Emaar Properties, the largest developer in the emirate, fell 2.5 percent, weighing on the index. 

Dubai’s telecom operator Du (Emirates Integrated Telecommunications Co) shed 0.4 percent, reversing earlier gains, after it said the UAE sovereign wealth fund Emirates Investment Authority had increased its stake by buying 463.3 million shares from Mamoura Diversified Global Holding and General Investments. 

In Abu Dhabi, blue chip companies Aldar Properties, First Abu Dhabi Bank and Abu Dhabi National Oil Company for Distribution, led losses, dragging down the main index. The other Gulf markets were all in the red, except for the Bahrain index, which rose slightly. 

In Egypt, the index gained 0.2 percent, boosted by a 4.5 percent gain by Pioneers Holding Company for Financial Investments. The company said one of its divisions, Arab Dairy Products, had received a letter of intent from a Netherlands based company about a plan to buy it.