Cold Shoulder For Russia Could Hint At OPEC Decision June 5th
Before the November 2014 OPEC meeting in Vienna, the head of Russia’s state-owned oil company Rosneft flew to Vienna to meet with OPEC members. The meeting demonstrated Russia’s interest in stopping oil prices from falling further, as it pushed OPEC to cut back on oil production. But little came of the meeting, since Russia was not prepared to participate in any decrease in output.
With OPEC set to meet again on June 5, the Wall Street Journal reported that Russian officials again held secret discussions with OPEC. Once again, the meeting, apparently held on May 13, concluded without any agreement.
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Russia is overwhelmingly dependent on oil. Around half of its budget revenues come from oil and gas, and for this reason Russia is particularly desperate to see a return to higher oil prices. A disproportionate dependence on oil revenues is something shared by most, if not all, of the members of OPEC.
But the two sides are operating in different circumstances. For example, the de facto head of OPEC, Saudi Arabia has a vast war chest, somewhere on the order of $700 billion in reserves.
Ultimately, however, the big difference is that Saudi Arabia plays the long game. There are multiple concerns in Riyadh that factor into its strategic decision making over oil output. The near to medium term concern is maintaining market share, which it is pursuing by keeping oil production levels high. Saudi Oil Minister Ali al-Naimi said on June 1 that the strategy was working, and with an eye on stagnating US shale production, he said the markets are moving “in the right direction.”
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