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

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.


Easy credit poses tough challenge for Russian economy minister

Updated 18 August 2019

Easy credit poses tough challenge for Russian economy minister

  • Measures being prepared to help indebted citizens; situation might blow up in 2021

MOSCOW: New machines popping up in Russian shopping centers seem innocuous enough — users insert their passport and receive a small loan in a matter of minutes.

But the devices, which dispense credit in Saint Petersburg malls at a sky-high annual rate of 365 percent, are another sign of a credit boom that has authorities worried.

Russians, who have seen their purchasing power decline in recent years, are borrowing more and more to buy goods or simply to make ends meet.

The level of loans has grown so much in the last 18 months that the economy minister warned it could contribute to another recession.

But it’s a sensitive topic. Limiting credit would deprive households of financing that is sometimes vital, and could hobble already stagnant growth.

The Russian economy was badly hit in 2014 by falling oil prices and Western sanctions over Moscow’s role in Ukraine, and it has yet to fully recover.

“Tightening lending conditions could immediately damage growth,” Natalia Orlova, chief economist at Alfa Bank, told AFP.

“Continuing retail loan growth is currently the main supporting factor,” she noted.

But “the situation could blow up in 2021,” Economy Minister Maxim Oreshkin warned in a recent interview with the Ekho Moskvy radio station.

He said measures were being prepared to help indebted Russians.

According to Oreshkin, consumer credit’s share of household debt increased by 25 percent last year and now represents 1.8 trillion rubles, around $27.5 billion.

For a third of indebted households, he said, credit reimbursement eats up 60 percent of their monthly income, pushing many to take out new loans to repay old ones.

Orlova said other countries in the region, for example in Eastern Europe, had even higher levels of overall consumer debt as a percentage of national output or GDP.

But Russian debt is “not spread equally, it is mainly held by lower income classes,” which are less likely to repay, she said.

The situation has led to friction between the government and the central bank, with ministers like Oreshkin criticizing it for not doing enough to restrict loans.

Meanwhile, economic growth slowed sharply early this year following recoveries in 2017 and 2018, with an increase of just 0.7 percent in the first half of 2019 from the same period a year earlier.

That was far from the 4.0 percent annual target set by President Vladimir Putin — a difficult objective while the country is subject to Western sanctions.

With 19 million people living below the poverty line, Russia is in dire need of development.

“The problem is that people don’t have money,” Andrei Kolesnikov of the Carnegie Center in Moscow wrote recently.

“This is why we can physically feel the trepidation of the financial and economic authorities,” he added. Kolesnikov described the government’s economic policy as something that “essentially boils down to collecting additional cash from the population and spending it on goals indicated by the state.”

At the beginning of his fourth presidential term in 2018, Putin unveiled ambitious “national projects.”

The cost of those projects — which fall into 12 categories that range from health to infrastructure — is estimated at $400 billion by 2024, of which $115 billion is to come from private investment.