Senior OPEC and Russian oil industry officials stepped up vague talk on Monday of possible joint action to remedy one of the worst supply gluts in decades, while Saudi Arabia signaled its resolve to allow the market to balance itself.
The latest volley of comments highlighted the intensifying pressure of $30 a barrel oil prices on cash-strapped countries such as Russia, but did not appear to tilt the scales meaningfully towards any concerted action to reverse the price crash, an idea repeatedly mooted but dismissed for over a year.
Speaking in London, OPEC Secretary General Abdullah al-Badri said other producers should work together with the group to tackle swollen global stockpiles so prices can recover, essentially reiterating OPEC’s longstanding position that it would only consider cutting output if others pitch in.
Moscow, seen as the likely lynchpin of any potential output agreement, has so far refused to cooperate, saying its fields and weather conditions are different from those in the Gulf even as prices below $30 per barrel are way below what its budget needs to breakeven.
But as its currency collapsed to an all-time low last week and with parliamentary and presidential election looming in the next two years, pressure is rising on the Kremlin to protect state revenues and avoid mass public discontent.
“The practice of filling the market with cheap oil at any cost is wrong — half a year or a year later it could be sold at twice as high,” Leonid Fedun, vice-president of Lukoil, Russia’s second largest oil producer, was quoted as saying.
Last week, the head of Russia’s direct investment fund, Kirill Dmitriyev, who doesn’t oversee Russian oil policies, said at a conference in the Swiss Alpine resort of Davos that Russia could one day cooperate with OPEC – not now but when the markets rebalance – in a year or later.
The comments represent a departure from the previous stance when Russia’s energy ministry has repeatedly said it could talk to OPEC but sees no reason to cut production artificially.
Many Kremlin watchers say a deal would depend unilaterally on the Russian President Vladimir Putin, who sees oil as only a small part of the puzzle which also includes dialogue with the West and Saudi Arabia on the war in Syria as well as sanctions on Russia imposed by the West over its actions in Ukraine.
Oil traders appeared to put little stock into the comments on Monday, with crude resuming this year’s steep rout after a two-day rebound, dropping 5 percent to around $30.
And there is no indication of a change of heart from Saudi Arabia, which drove the Organization of the Petroleum Exporting Countries’ decision in late 2014 to shift its strategy in favor of defending market share, not prices.
The chairman of state oil firm Aramco, Khalid al-Falih, said he is continuing to invest in production despite deep spending cuts across most of the industry, and that markets would likely balance at a “moderate” oil price soon.
“Saudi Arabia is well documented to be the clear lowest cost producer,” he told reporters. “We have scale, capability, technologies that have allowed us to maintain our low cost.”
Analysts from Bernstein said global exploration and production spending excluding OPEC would fall by 18 percent this year if oil prices were to average $50 a barrel and collapse by 38 percent if oil was to trade at $30.
“Demand will grow, as it has already started in 2015, and there will be a period not far into the future (when) demand will catch up with supply,” said Falih.
FEW TAKERS FOR TEAMWORK
Oil prices have collapsed to below $28 a barrel this month from $100 in mid-2014 on a supply glut that has caused global oil stockpiles to swell to unprecedented levels.
“It is vital the market addresses the issue of the stock overhang,” Badri said at the conference at Chatham House in London. “This is now central to the return of a balanced market.”
So far only non-OPEC Oman and Azerbaijan have expressed willingness to cut production in tandem with OPEC.
The price drop has started to slow the development of relatively expensive supply sources such as U.S. shale oil and forced companies to delay or cancel billions of dollars worth of projects, putting some future supplies at risk.
“We expect that we will go through one more downturn cycle of oil price. But we will recover. The market is definitely going to balance itself because today’s oil price is not sustainable whatsoever,” Qatar’s Energy Minister Mohammed al-Sada told the same conference in London.
The price slide has squeezed income in producing nations and is particularly painful for OPEC members such as Venezuela, who depend heavily on oil income and lack the capacity to pump more.
Venezuela has requested OPEC hold an emergency meeting to discuss steps to prop up oil prices. But OPEC’s Gulf members including Saudi Arabia, who led the 2014 policy shift, have opposed earlier calls for emergency meetings.
Some are instead ramping up production. Iran is pushing to boost exports now that sanctions have been lifted. Iraq may further raise oil output in 2016, reaching levels as high as 4 million barrels per day (bpd) from the country’s south, a senior Iraqi oil official, who asked not to be named, said on Monday.
The Qatari minister, whose country holds OPEC’s rotating presidency this year, said the request was being considered although he declined to say if he was in favor.
“We received a request and oil ministers are discussing that,” he said. “It is being evaluated.”
In case producing nations don’t reach a deal on output, Saudi Arabia and Iraq have further ability to increase supply thus squeezing rival producers.