The powerful head of Russia’s largest oil company downplayed his disagreement with Saudi Arabia that led to a dramatic fall in oil prices, and he predicted a quick rebound sometime this year as U.S. shale production is knocked out.
Rosneft CEO Igor Sechin told state media in a televised interview on March 20 that the so-called OPEC+ group had lost its significance in balancing the global oil market as countries including the United States, Brazil, Norway, and Mexico raised production at its expense.
“Is there any point in cutting production in the future if other countries are going to increase it,” he said.
At a meeting of OPEC+ members on March 6 in Vienna, Russia informed Saudi Arabia it would not agree to its request for another production cut to support oil prices amid a fall in global demand caused largely by the effects of the coronavirus pandemic.
Sechin, a close associate of President Vladimir Putin, was reportedly behind Russia’s decision. Russia is a key member of OPEC+, which includes the 13-nation OPEC cartel and several independent oil-producing nations, but not the United States.
Riyadh, angered by Moscow’s stance, announced the following day it would ramp up production by about 20 percent, causing the biggest one-day fall in oil prices in nearly three decades.
Riyadh’s “shock-and-awe” move — seen as an attempt to get Moscow back to the negotiating table — has sent Russia’s currency tumbling roughly 20 percent to a near record-low of 80 rubles to the U.S. dollar.
Oil is Russia’s top export commodity and accounts for a large portion of its budget revenue. Brent crude prices closed March 20 at $29 a barrel, down by more than half over the past month.
Neither Moscow nor Riyadh has showed a willingness yet to give in to the other’s demand.
Sechin, who has faced some criticism at home for the decision, said in the interview that Russia’s lifting costs are nearly as low as Saudi Arabia’s and that Rosneft could maintain its production for another 22 years at current levels even if it stopped exploration.
He described Saudi Arabia’s increase as market dumping.
However, he predicted oil prices would return to a range of between $50 and $60 a barrel by the end of the year as U.S. shale producers are squeezed by the low-price environment.
Some U.S. shale producers have high break-even costs of around $50 a barrel.
“Several companies in the shale sphere are already cutting back on their work and that, of course, will also bring the market into balance,” Sechin said.
U.S. shale production has surged over the past decade and lifted the nation’s total oil output to 13 million barrels a day, surpassing Russia and Saudi Arabia for the top spot globally.
That has opened the door to U.S. oil exports to Europe and Asia, traditional Russian markets.
The 59-year-old executive said other factors are also impacting the oil market, including coronavirus and sanctions.
Sechin called the virus a “serious problem” but said China was making progress on stopping its spread and cautioned against “dramatizing” the situation.
He also claimed U.S. sanctions against Russia, which include financing and technology for the oil industry, have hurt American companies more than Russian companies.
U.S. banks have had to close their credit lines with Russia’s oil industry, depriving them of billions of dollars in interest, he said.