Putin to meet Russian producers ready to agree on oil cuts

Irina Reznik, Olga Tanas and Henry Meyer April 03, 2020

MOSCOW (Bloomberg) --Russia’s oil industry is ready to agree cuts to production together with Saudi Arabia and other major producers in a desperate bid to halt the slide in prices, according to five people familiar with the efforts.

While the Kremlin hasn’t confirmed a willingness to take part in reducing crude output by 10 million barrels a day, as announced by U.S. President Donald Trump Thursday in a Tweet that drove oil prices up as much as 47%, the Russian producers are ready for coordinated action, said the people, who spoke on condition of anonymity because the matter isn’t yet public. President Vladimir Putin will meet oil executives and officials to discuss the situation on the world energy markets later on Friday, the Kremlin said.

The Russian reversal reflects alarm at the sudden collapse in demand sparked by the coronavirus pandemic, which threatens a worldwide recession this year. As recently as two weeks ago, Putin was resisting any concessions in the stand-off with Saudi Arabia since Moscow pulled out of a supply-limit agreement with OPEC over demands for deeper cuts in output. That prompted Saudi Arabia to flood the market with oil, driving prices to an almost two-decade low amid a glut in supply because of a sharp fall-off in consumption.

Russia and Saudi Arabia could reach a deal to restrict production at the OPEC+ meeting scheduled for April 6 aimed at increasing prices to $30 dollars, according to Andrey Kortunov, director of the Kremlin-founded Russian International Affairs Council. “Thirty dollars would be a lot better than twenty,” he said. “No one here expected oil prices to plunge so deeply.”

Rock Bottom. At the same time, it’s important that the U.S., the world’s largest oil producer, should participate, he said. Even if formally the Trump administration can’t commit to private companies scaling back output, it should facilitate that, said Kortunov. The rock-bottom prices have devastated U.S. oil producers, making swathes of the industry uneconomic. Trump is meeting industry officials Friday.

Russia may agree to a three-way arrangement with Saudi Arabia and the U.S., said four people at Russian oil producers. The Energy Ministry didn’t immediately respond to a request for comment. The Kremlin referred questions to the Energy Ministry.

The OPEC+ coalition wants oil producers outside the existing group to attend next week’s meeting, a delegate said, asking not to be named talking about confidential discussions. If global producers are willing to participate, a cut of 10 million barrels a day is realistic, the delegate said.

Saudi Arabia, which was producing around 9.7 million barrels a day before the collapse of the OPEC+ agreement on March 6, had vowed to pump 12 million barrels a day in April, giving it the ability to instantly cut almost three million barrels.

Difficult Times. Russia produced an average of 11.294 million barrels of crude oil and condensate in March, according to the Energy Ministry’s CDU-TEK data published earlier this week. While officials insist that Russian crude remains competitive even at such low oil prices, the plunging demand risks anyway sapping the ability to keep pumping at the same levels.

Economically, the impact of coronavirus is already wreaking such havoc that any oil deal will at best mitigate the damage. Russia is rewriting its budget to prepare for oil prices at $20 a barrel, according to people familiar with the discussions. Russia will ramp up borrowing by 1 trillion-1.5 trillion rubles ($13-19 billion) this year as a result, they said.

“If the forecasts of a 15-20 million barrel reduction in demand turn out to be right, then no production cut will help raise oil prices,” said Kirill Tremasov, head of research at Loko-Invest in Moscow and a former Economy Ministry official. “The Russian government is doing the right thing, preparing for difficult times and a low oil prices. There are no other options.”

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