Oil and Gas

Russia won’t stick with its side of the OPEC cut bargain: Analyst

Russians are unlikely to comply with OPEC deal: Strategist

Russia is not going to comply with its side of the OPEC oil supply agreement and cut production by 300,000 barrels a day, an analyst told CNBC on Thursday.

For the first time in 15 years, Russian officials agreed to join OPEC members in an attempt to revamp oil prices by cutting production. The 14 members of OPEC agreed Wednesday to cut oil production from 33.6 million barrels a day (b/d) to 32.5 million b/d. As part of the agreement, non-OPEC members including Russia and Venezuela would have to cut production by a total of 600,000 b/d. Both groups are scheduled to meet on December 9th.

However, the Kremlin could easily argue "technical issues" and not fulfill its part.

When asked if Russia would comply with its part of the agreement, Chris Weafer, senior partner at Macro-Advisory, was fast in saying: "No, I don't' think so at all."

Russian President Vladimir Putin
Sergei Karpukhin | Reuters

"Yesterday's meeting obviously generated very strong headlines but (it was) very weak in the detail, in particular the detail concerning the supposed contribution of non-OPEC producers of 600,000 barrels cut," Weafer explained.

The Russian government was planning to increase output in 2017. According to Weafer, authorities could - instead of cutting production from its current levels - reduce it from the planned levels for next year and tell OPEC "that's our contribution."

The lack of detail on how the cut will take place gives Russia room to maneuver. However, there are also doubts as to what extent Moscow is technically able to implement a production cut.

Alexander Novak, the Russian energy minister, said on Wednesday that Russia was going to look at the cut "but within technical parameters."

Weafer told CNBC that "even if the government was committed to contributing, it's difficult to see how they would get the companies to do it. It's not like an OPEC structure."

In OPEC countries there's usually a state firm that obeys government directions on oil production, but in Russia there are different companies listed involving private investors.

"(Russian energy firms) will all cite technical reasons. I simply don't believe it," Weafer added.

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