EMEA News
Russia's Vow To Join Output Caps Comes Amidst Iraq Urging Production Boost
In what is being viewed as the firmest indication of cooperation so far amidst multi-country agreements with no formal backing, Russian president Vladimir Putin told delegates at the World Energy Congress in Istanbul on Monday that his country is ready to join Saudi Arabia and limit oil output.
He said, "Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same.
"In the current situation, we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market."
The remark caused Brent to reach a one-year high of $53.73 a barrel in London.
While Putin's stance earned headlines, left unsaid was that the president gave himself a possible 'out' by calling on other exporters to likewise cut production – the unstated implication being that should they refuse to do so, it might prompt nations that had expressed willingness to play ball to make an about-face.
And while Khalid al-Falih, energy minister for Saudi Arabia, told Istanbul delegates that he was optimistic a deal would occur and lift prices as high as $60 by year-end, the fact remains that in addition to Iran steadily increasing production towards pre sanctions highs, Libya and Nigeria too have vowed to boost production.
Moreover, Jabar al-Luaibi, oil minister for Iraq, announced one day before the Istanbul conference that he is urging his country's oil and natural gas producers to continue stepping up output next year.
The minister "has affirmed the need to proceed forth with increasing oil and gas production through enhancing the national effort and those of the licensed companies for the remainder of 2016 and also for 2017," according to a statement.
With these forces in play, it seems questionable whether the Saudis or Russia would abide by the agreement reached in Algeria to reduce output to a range of between 32.50 million barrels per day (bpd) and 33.0 million bpd - especially considering the latter up until Monday repeatedly stated it will maintain its upward output trajectory.
In fact, no sooner did Putin prepare to head home than some media outlets wondered if Falih's comment in Istanbul that the curb agreement requires "a very gentle hand on the wheel" and "not doing anything dramatic" indicates the Saudis won't deviate greatly from the policy of tolerating low prices and maintaining market share.
All this prompted Naeem Aslam, chief market analyst at ThinkMarkets U.K. Ltd., to remark, "Caution may be the best practice: if history tells us anything, it is that these major oil players also have the habit to not respect the agreed agreement."
Just days ago, Russia declared it wouldn't buy into the output cap deal, and this combined with a Petroleo Brasileiro SA official saying non-members won't buy into the cap either caused a Friday oil price plunge.
