x Abu Dhabi, UAEMonday 24 July 2017

Opec courts Russia ahead of crunch meeting

"The ground is ready in Opec to accept Russia as a new member," says Iranian oil minister.

Just days before its next meeting, OPEC has resumed courting Russia, the top crude producer outside the group supplying 40 per cent of the world's oil. Closer ties could be part of OPEC's next tactical move to confront falling oil prices after a series of drastic export cuts that have stabilised prices below US$50 a barrel. "The ground is ready in OPEC to accept Russia as a new member but, of course, countries request membership by evaluating and considering their own interests," said Gholamhossein Nozari, the Iranian oil minister, according to the semi-official Fars News Agency. His remarks followed a recent call by Jose Botelho de Vasconcelos, the OPEC president, for oil exporters outside the organisation to join OPEC's output curbs to stabilise the world market. Currently at 9.8 million barrels per day (bpd) of crude, according to the Vienna-based JBC Energy, Russia's oil production sometimes tops that of Saudi Arabia. It has done so since the OPEC leader started to bear the brunt of the group's 4.2 million bpd of output cuts announced since September and reduced its production to below 8 million bpd. A partnership with Russia could work even if the country decides not to seek full membership of the 49-year-old organisation. Russia has a well-tested means of controlling its oil exports, through the duties Moscow imposes on oil leaving the country. Following a reduction in that tax early this year, Russia has recently exported oil at a higher rate than it averaged last year, undermining OPEC's efforts to mop up excess oil supplies on the world market. Russian oil exports of between 5.4 million and 5.5 million bpd in the first two months of this year were about 2.7 per cent higher than last year's average, according to government figures. "OPEC members will be unhappy that exports have risen," said Chris Weafer, the chief strategist of Moscow-based UralSib Financial. "With domestic demand falling as the economy slows, the fear is that Russia may add the extra barrels to the export market. OPEC will now want a very definite commitment on production cuts, how much and when." The rise in Russian oil exports complicates the already tough deliberation the group faces at its meeting in Vienna on Sunday. With oil prices up 32 per cent from their December low, some OPEC delegates have argued against a further reduction in quotas until full compliance with previous cuts has been reached. But today, a member of Kuwait's Supreme Petroleum Council called for OPEC to cut output by another 1 million bpd to help push crude to a "fair price" of $75 a barrel. Chakib Khelil, Algeria's oil minister, said the market was expecting a cut. "If we do not reduce, prices would fall," he said. In past periods of low oil prices, OPEC has sometimes made lowering its own output conditional on non-OPEC oil producers cutting exports. But with Russia, the group has been as intent on dangling carrots in recent months as applying sticks. Russia was not only invited to attend the past three official OPEC meetings, but was also offered voting rights. tcarlisle@thenaitonal.ae