Russia ‘disagrees with OPEC on fair oil price’

Comments by Putin at the St. Petersburg International Economic Forum have set the stage for tough talks between Russia and its partners over policy on the global oil market. (AFP/File photo) 
Updated 07 June 2019

Russia ‘disagrees with OPEC on fair oil price’

  • Putin says Moscow will take joint decision on output with colleagues from the producer

ST. PETERSBURG: President Vladimir Putin said on Thursday that Russia had differences with OPEC over what constituted a fair price for oil, but that Moscow would take a joint decision on output with OPEC colleagues at a policy meeting in the coming weeks.

Putin’s comments have set the stage for tough talks between Russia and its partners over their policy on the global oil market, which are expected to take place within a month.

OPEC and large oil producers led by Russia are due to meet in Vienna in the end of June or early July to decide on their policy for the next half of the year as the current deal expires.

They have agreed to cut their combined production by 1.2 million barrels per day, or more than 1 percent of global output, from Jan. 1 until the end of June to support oil prices and balance the global crude market.

Russia joined the efforts with OPEC in 2016 and their cooperation has helped to stabilize oil pieces and ease an overhang of stockpiles.

Speaking at a gathering with the foreign media in St. Petersburg, Putin said that he would not reveal what Russia and its partners would do on the oil market in the second half of the year, but said that several factors, including higher oil demand in the summer, should be taken into account.

Putin also pledged to continue cooperation with OPEC, though Russia and the organization’s kingpin, Saudi Arabia, have certain differences on so-called “fair price” of oil.

“This is natural,” said Putin. “Look at the price of a barrel,
which Saudi Arabia uses to calculate its budget. This is significantly higher than for us,” Putin said, adding that Russian budget implied an oil price of $40 per barrel.

According to an International Monetary Fund official, Saudi Arabia would need oil priced at $80-$85 a barrel to balance its budget this year. Oil prices are trading at more than $60 per barrel, pressured by global trade disputes.

Putin said a price of $60-$65 a barrel suited Moscow and that the decision by OPEC and its oil exporting allies should also take into account the decline in production in Iran and Venezuela, and problems in Libya and Nigeria. 

Meanwhile, Russia’s second-biggest oil producer Lukoil plans to propose that Moscow extend its participation in a global oil production-cutting deal at
existing terms to the end of this year, its chief executive Vagit Alekperov said.

“I will propose maintaining the deal and monitoring (global oil) inventories, excluding Iran,” Alekperov said, referring to an increase in oil prices.




Tankers defer retrofits to cash in on freight rates

Updated 19 October 2019

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.