RUSSIA'S OIL PAUSE
FT - If Russia's energy minister had hoped for a united front from the country's oil executives on what to do about a potential extension to an agreement with Opec to cut global production, a high-profile meeting on Wednesday will have disappointed him.
Representatives from Russia's huge hydrocarbons industry walked out of the Ministry of Energy building in Moscow after a meeting with Alexander Novak, with no discernible resolution on whether Moscow should back an extension to the 11-month agreement, and obvious discontent among executives at talk of another potential year with their pumps at less than full throttle.
"We need to continue discussing and monitoring, and have agreed to meet again in a week," said Alexander Dyukov, head of Gazprom Neft. The head of smaller rival Surgutneftegaz was less diplomatic. When asked whether the Opec deal had been discussed, Vladimir Bogdanov replied: "Yes, as much as we could! We discussed a lot of things, and talked about current affairs, and what will happen in the next hundred years."
The original deal with Opec's de facto leader Saudi Arabia, brokered by Mr Novak and Russian president Vladimir Putin, reduced oil production from participating countries by 1.8m barrels a day and helped push the price of benchmark Brent Crude above $60 a barrel this week for the first time in more than two years.
In May, the agreement was then extended until March 2018.
But Russia's oil barons are not universally pleased by the rising oil price and increasing talk by some participating countries of extending the cuts past the March expiry date has unsettled Russian companies that have made large investments in future production capacity and upstream projects, and irked executives that argue their sacrifices are only benefiting others.
"One year [of restrictions] is annoying but workable. Two years for sure creates technical issues and difficulties for future upstream projects," said Katya Rodina, an industry analyst at VTB Capital in Moscow. "There are definitely a number of companies who will have to delay things [if the deal is extended further]."
Mr Novak had intended Wednesday's meeting to produce a degree of harmony ahead of a November 30 Opec meeting where the possible extension will be discussed. But some were more interested in talking about how to bring the cuts to an end.
"Speaking about the company's concerns, first of all it was about how to prepare for suspending measures to restrict production," said Mikhail Leontiev, spokesman for Rosneft, the country's biggest oil producer.
Impatience with the restrictions is steadily spreading across Russia's oil industry, which has some of the lowest production costs in the world.
Russian onshore fields only require an oil price above $20 a barrel to turn a profit, say executives, who privately grumble that the deal in effect means they are cutting their output to benefit other countries where production costs are higher and companies need a higher oil price to make money.
At the same time, extending the cuts could force Russian companies to postpone projects. Rosneft, which is already limiting production at some of its newest oilfields, this week warned that it may be forced to delay the launch of two greenfield projects if the cuts are extended. Lukoil, the country's second-largest producer, has said it plans to postpone several of its most difficult projects and potentially withdraw from some assets.
"Exploration and development costs a lot of money. Wells are drilled with the expectation of producing oil to pay for that project, so if you can't produce as much as you want, the costs obviously go up," said a senior executive at a Russian oil producer.
Investors have taken note. While the S&P Global Oil Index is down 3 per cent so far this year, the Oil and Gas index on the Moscow Exchange has shed 10 per cent. Rosneft's share price has fallen 27 per cent in 2017.
This week the United Arab Emirates, Opec's fourth-largest producer, said it backed an extension to the agreement, while Mr Putin and officials in Saudi Arabia have previously said they could envisage a longer period of cuts.
But Moscow's final decision is still uncertain. Igor Sechin, Rosneft's powerful chief executive, has already argued that rising production by US shale producers, who are not part of the agreement, has undermined its effectiveness.
Even Mr Novak, who has asserted Russia's "full commitment" to the deal, which will probably live or die by Moscow's support, said last month that it would make more sense to decide on a potential extension in early 2018.
"My point of view is to fulfil the agreement, to finish it on April 1, and then start discussing, analysing what was achieved, what result we got and what tasks we are putting on for the medium term," Lukoil's chief executive Vagit Alekperov said this week during a visit to Abu Dhabi.
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IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.