09 February 2019, News Wires — Igor Sechin, head of Russian oil giant Rosneft and one of Vladimir Putin’s closest allies, has written to the Russian president saying Moscow’s deal with OPEC to cut oil output is a strategic threat and plays into the hands of the United States.
The letter did not say whether the agreement in place since 2017 between the Organization of the Petroleum Exporting Countries (OPEC) and other large oil producers led by Russia to cut output should be extended or not.
But according to two well-placed industry sources, the letter was a clear signal to other senior Russian officials involved in energy policy that Sechin wants the deal to come to an end.
There is no guarantee Putin will back Sechin’s view because the president sees the pact with OPEC as part of a much bigger puzzle involving dialogue with OPEC’s leader Saudi Arabia over Syria and other geopolitical issues.
“The letter is a threat to the deal extension. But anyway, Putin is the ultimate decision maker,” one of the sources said.
Reuters has seen a copy of the letter with no date or header. A government source said it was sent at the end of December.
The so-called OPEC+ deal has helped oil prices double to more than $60 per barrel. It has been extended several times and, under the latest deal, participants are cutting output by 1.2 million barrels per day (bpd) until the end of June.
OPEC and its allies will meet on April 17-18 in Vienna to review the pact.
Should Russia abandon the deal, it would result in a steep oil price crash or force Saudi Arabia to carry most of the burden of cutting output to continue propping up global crude prices. Riyadh has said it will not do this alone.
A price crash would deal a severe blow to U.S. oil firms as they operate fields where it is more expensive to extract oil, but would benefit the broader U.S. economy.
U.S. crude oil output is expected to rise to a record of more than 12 million bpd this year and climb to nearly 13 million bpd next year, the U.S. Energy Information Administration said on Tuesday.
Sechin has been the only Russian official to consistently oppose the OPEC deal since the Kremlin endorsed the plan, saying it has allowed U.S. clout to rise significantly.
“The participants of the OPEC+ agreement have actually created a preferential advantage for the USA – that sees raising its own market share and the seizure of target markets as its primary task – which has become a strategic threat to Russia’s oil industry development,” the letter seen by Reuters says.
“The key strategic challenge which the domestic oil industry is faced with today is the further decline in Russia’s market share, despite the availability of quality recoverable oil reserves, necessary infrastructure and personnel,” it said.