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Russia warming to production co-operation

Published Wednesday, February 3rd, 2016

There were two important developments yesterday in the cat and mouse oil production game. The Kremlin have brought in heavyweight Foreign Minister Sergei Lavrov and the FT reported that internal discussions have taken place on selling off shares in Russian state enterprises to raise funds. After meetings in the UAE, Lavrov said that Russia is open to co-operation on oil and implied they would join in meetings if any are called.

The speculation is that Russia would raise $6bn from selling shares in its state enterprises. However rather than sell off the crown jewels it would be a lot easier to cut production. If a cut of 400,000 bpd helped raise oil prices by $10 bbl that is worth an extra $33 bn per annum to Russia. If it were to raise the price by $30 bbl to $60 bbl it is worth $110 bn. Russia’s latest budget is based on oil at $50 bbl, a number easily achievable with co-operation and a modest cut.

Pressure to do something also comes from the news that Nigeria has approached the World Bank and the African Development Bank for $3.5 bn in emergency loans. The IMF has already been in to see Azerbaijan and Ecuador may be next. Venezuela can only be a whisker away from default judging by their frantic efforts to get a meeting organised.

to read the rest of the report, please click here

Posted by David Hufton