While the haggling between Saudi Arabia and Iran remains the main focus of a potential oil freeze deal, Russia announced on Sunday that it pumped at a post-Soviet record 11.1 million barrels per day in August.
Russia’s role in a potential grand bargain between producers, who are aiming to speed up a reduction in the world oil glut and drive oil prices higher, remains unclear. However, its oil minister, Alexander Novak, was present in Algiers last week when Opec members reached a deal in principle to work towards an output freeze by the next full ministerial meeting in Vienna on November 30.
“The exact role of Russia remains unclear,” said Amrita Sen, the chief oil analyst at Energy Aspects. “In our view, given nearly 500,000 bpd of new project start-ups in the fourth quarter this year, Russia is unlikely to [join a freeze deal].”
Mr Novak said on Thursday, the day after the Algiers agreement was announced, only that “Russia will carefully consider those proposals which will be eventually drawn up”, but he added that “our position is keeping the volume of production at the level that has been reached”.
Russia’s ministry of energy reported on Sunday that output of 11.1 million bpd last month was 4 per cent above the previous month’s output of 10.7 million bpd and was the highest since Russia’s peak output in 1988 of 11.4 million bpd, before the Soviet Union broke apart.
Russia’s position is complicated by the fact that large shares of its output come from companies that have private shareholders: Rosneft, which is nearly 20 per cent owned by BP and has a public float on the London and Moscow stock exchanges, and the oil-producing unit of Gazprom.
Russia also recently revived a long-postponed plan to sell another 20 per cent stake in Rosneft to the public to help fund the government’s budget deficit.
After Algiers, the main hurdle for a final deal is seen as compromise between Saudi Arabia and Iran about what burden each will bear under an output freeze.
The politics are delicate, as Ms Sen explained: “Even though Iran cannot raise its output beyond 3.6-3.65 million bpd in the near term, as its production has stabilised at this level over the past four months, agreeing to freeze would effectively require Iran to officially acknowledge that.”
A political deal might be forged through careful wording whereby Saudi Arabia – and its allies, the UAE, Kuwait and Qatar – all accept some formal restraint to reach the overall Opec production target of between 32.5 million bpd and 33 million bpd (actual output was 33.2 million bpd in August). Iran could de facto freeze while not formally agreeing to do so.
But that still leaves unclear the role of Russia, which signed a vague cooperation deal with Saudi Arabia at the China G20 meeting in August.
Therefore, “the market should brace itself for significant volatility”, said Ms Sen. “There will be plenty of twists ahead.”
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