Russia is seeking observer status in OPEC, but the CEO of Rosneft, its largest oil company, said there is no chance that Moscow would want to become a member. In fact, he severely criticized the cartel, saying its decision not to cut production and shore up oil prices destabilized the world market.
“We are ready to join OPEC as observers,” Igor Sechin said February 10 in a wide-ranging speech to the International Petroleum Week 2015 conference in London. “We respect this organization, it would like to see us among its members. However, we cannot join OPEC.”
The reason, he said, was structural. “[W]e can’t operate like OPEC because our industry is privatized and we have shareholders and we need to look after our shareholders’ rights,” he said.
Sechin also launched into a tirade against OPEC’s practices, which he said led to a “destabilization” of the oil market. Globally, oil prices began falling in June 2014 in response to increased production, primarily from U.S. shale oil fields and weaker demand in Europe and Asia.
OPEC responded during a meeting at its Vienna headquarters in November by deciding to keep production at 30 million barrels per day, sending prices even lower. Sechin said that decision had been dictated by a few members, notably Saudi Arabia, who were “forcing others to agree with them.”
After the meeting Saudi Oil Minister Ali al-Naimi said the cartel’s strategy was to regain market share lost, in part, to the United States by reducing crude prices to the point where relatively expensive shale extraction ceases to be profitable.
At the London meeting, Sechin said, “The share of OPEC is pretty stable at around 39 percent. This organization lost the unity of its members and in some cases is not respecting of some of its members.”
Many OPEC ministers and delegates have blamed not only the United States but also other non-OPEC producers such as Kazakhstan, Mexico and Russia for the oversupply. But two members of the cartel, Venezuela and Iran, which rely heavily on oil revenues to finance their governments, have said OPEC also shares the blame.
In fact, in January, Venezuelan President Nicolas Maduro met Russian President Vladimir Putin in Moscow as part of an international tour to persuade leading oil producers to cut output. So far Maduro’s tour has been in vain.
Russia isn’t doing much better than Venezuela. It may be the world’s largest oil producer, but energy represents is primary commodity. The 50% drop in oil prices since June, combined with sanctions imposed by the European Union and the United States over the crisis in Ukraine, have left the Kremlin with too little revenue to run the country and a severely devalued ruble.
In its annual outlook issued February 10 in London, the International Energy Agency (IEA), which advises industrialized countries on energy policy, said it expects oil prices will bottom out fairly soon and rebound, although probably not to levels above $100 per barrel.
The IEA said the U.S. shale industry probably would survive the current period of low prices, but that Russia eventually would be the “top loser” in the industry, and that OPEC may never regain its leading status.
“Russia faces a perfect storm of lower prices, sanctions and currency swings, pushing its production into contraction,” the IEA said. “OPEC’s share of global supply will inch up from recent lows but will not recover to the levels enjoyed before the surge in [shale oil] supply.”
Originally written for OilPrice.com, a website that focuses on news and analysis on the topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.