Calling Riyadh's bluff, Russia says it is ready to raise oil output too.
Russia said on Wednesday it was prepared to push oil production to new historic highs, just days after a global deal to freeze output levels collapsed and Saudi Arabia threatened to flood markets with more crude. OPEC member Venezuela predicted oil prices could crash in the next few weeks if producers failed to resume dialogue as the specter of oversupply loomed once more. Venezuela and top non-OPEC producer Russia had been the main proponents of the output freeze deal, in the making since February, until it collapsed on Sunday after Riyadh said it would not sign unless Iran took part. The deal had been meant to help the market rebalance by removing a large chunk of oversupply and a stockpile glut. But Saudi Arabia said it could jack up output instead - by as much as 2 million barrels per day (bpd) to over 12 million, which would allow it to overtake Russia as the world's largest producer.
Whatever happens now, there's very little chance of Russia -- the world's second biggest oil producer after the U.S. -- ever agreeing to restrain output, said Lukoil CEO Vagit Alekperov. Asked whether Russia and OPEC could eventually reach a deal, Alekperov told CNN: "I don't think so, despite the fact that work on so called coordination of our activities is underway." He said Russia wouldn't "integrate" with OPEC, noting that his country had maintained its distance from the cartel even during the Soviet era.
Russia is planning to revamp its fiscal policy with a new budget rule designed to insulate its economy from swings in crude prices. The proposed mechanism would prevent the government from spending excess revenue above a pre-set oil price, Finance Minister Anton Siluanov said in Moscow. The crude-price cutoff would be in the range of about $40 to $50 a barrel, and income received above that will be stowed away in reserves. “Without a budget consolidation, the economy will slide toward its pre-crisis state, dominated only by commodities and export-oriented industries,” Siluanov said Wednesday at his ministry’s annual meeting in Moscow. The budget proposals “should be a long-term reference point for fiscal policy.” Russia, its finances reeling from the worst oil crash in a generation, is revisiting a fiscal mechanism suspended this year that capped spending based on a backward-looking average for crude. The new approach has the backing of the central bank, which has warned that the budget is emerging as a major risk for inflation. The proposal will be submitted for government discussion this fall, according to Siluanov. Authorities are also seeking fiscal consolidation of one percentage point of gross domestic product a year, he said.