The World Energy Congress got underway in Istanbul today creating another opportunity for OPEC ministers and Russia to talk up oil prices on the heels of last month’s Algiers “deal” to limit production.
President Putin attended the opening day and used his appearance to promote the OPEC Algiers deal. Putin said “Russia is ready to join in joint measures to limit output” but added that “we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.”
The Russian President’s comments sent oil markets and headline writers into hyper-drive on Monday. But a closer examination of the situation should provide some caution.
Earlier on Monday Russia’s energy minister Alexander Novak said Russia would prefer to freeze its output at current levels rather than make reductions. The production freeze theme was echoed by Gazprom’s deputy CEO Alexander Medvedev who also said on Monday “Freeze not contraction.”
The freeze play is not insignificant since Russia’s current October production is at a post-Soviet record of 11.2 million barrels a day.
Still Russia is not taking any unilateral action to stabilize prices as President Putin said it defers a decision if an OPEC deal in November “will materialize.” It does not seem that Russia is too confident in the prospects for an OPEC deal. Russia is essentially telling OPEC: you go first. (Moreover, we would direct you to a previous client note where we highlighted Russia’s poor track record of cooperating with OPEC on production limits.)
The World Energy Congress meeting concludes on Wednesday but a meeting is scheduled Tuesday between Russian Minister Novak and Saudi Energy Minister Khalid al-Falih who is also attending. So we expect a few more days of hype promoting the prospects of an Algiers’ deal.
For his part, Minister al-Falih seems to be trying to lower expectations even about the impact of a potential deal on November 30. Al-Falih said he was “optimistic” about a deal, but added “It’s a very gentle hand on the wheel, and we’re not doing anything dramatic, different” emphasizing that he sees global supply and demand coming into balance.
Caveat emptor.
