Russia not to join OPEC, but...

Russia’s Energy Minister Alexander Novak said that Russia and OPEC may assume joint efforts on balancing the oil market after completion of the crude production cut deal (OPEC+).

"We are currently considering the format of long-term relations, which would potentially include market monitoring, information exchange and implementation of some joint measures as was the case in end-2016 if necessary," TASS cited the Russian minister as saying.

According to Novak, OPEC+ countries are currently developing a mechanism for long-term cooperation to be used after completion of the deal.

He added that the issue has been discussed with Saudi Arabia’s energy minister Khalid Al-Falih.

"There are various cooperation formats, ranging from periodic meetings of OPEC and non-OPEC countries to other formats, probably, of an organization that could cooperate with OPEC and non-OPEC states," he said.

According to him, Russia has no plans to join OPEC.

In late 2016, OPEC member-states and 11 independent oil-exporting countries, including Russia, entered into an agreement to reduce oil production. According to that agreement, during the first half of 2017 the participants were to withdraw 1.8 million barrels per day from the oil market in comparison with the level of October 2016.

The agreement was extended twice - until March 2018 and until the end of 2018.

Higher school of tariff regulation at Plekhanov Russian University of Economics, Ivan Kapitonov, speaking with Vestnik Kavkaza, noted that Russia s interested in the long-term cooperation with OPEC, only if it is given the position of the leader. "It would be possible while maintaining the current format of OPEC+ in one form or another, when Russia, in fact, leads the OPEC countries. The previous format of contacts was unprofitable for us, since Russia was invited to the position of ordinary member. The OPEC + format showed that our diplomatic abilities are much higher than those of other countries, and Russia can be the leader in regulating markets - this format is quite viable in the future," he stressed.

In his estimation, the creation of a permanent format of OPEC+ would be an effective tool for controlling oil prices. "Most of the oil production is controlled by the OPEC+ countries. The impact of the increasing production of the US can correct OPEC+ positions on the market, but do not abolish its influence completely. Such an alliance is very influential: after an agreement to cut output, oil in price jumped immediately by $15 per barrel, and then the growth was observed without significant drops. Yes, shale mining in the US is constantly increasing, but the overall price increase has been preserved in general, and now oil has fixed at a level above $70 per barrel," Ivan Kapitonov pointed out.

A senior analyst of 'Uralsib Capital', Alexei Kokin, expects that Russia's cooperation with OPEC will remain approximately in the same format as it is now. "I think that cooperation will be limited to coordination of production volumes, and it will be conducted in 2019 and even 2020. Of course, the volume of output will not remain completely and thoroughly fixed, there will be negotiations about its optimal level, which will be reviewed from time to time. I do not see any other options for contacts with OPEC, which would be of interest to Russia. Saudi Arabia has ideas about cooperation almost at the level of common projects, but it is unclear yet what opportunities for such joint work we have," he noted.

The expert agreed with Ivan Kapitonov that this cooperation with OPEC will allow to continue effective control of prices in the oil market. "The volume of supplies will continue to play a key role in servicing the market. But we should not forget that Saudi Arabia and Russia have their own long-term tasks, to some extent both countries want to reduce their dependence on hydrocarbon supplies. And we need to get the maximum cash flow from hydrocarbon exports while the issue of switching to diversification of budget revenues is being decided," Alexei Kokin concluded.