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MOSCOW – Russia's oil minister is flying to Algiers this weekend to meet with Saudi and OPEC counterparts.
Since joining forces with Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries two years ago, Russia has helped the group regain control of world oil prices.
For decades, the cartel has increased or reduced its production to balance supply and demand and support prices.
This expectation was contested several years ago when the United States flooded world markets, causing prices to fall. OPEC, which pumps more than one out of every three barrels the world consumes, seems powerless to lift markets. That is to say until it engages Russia and a group of non-OPEC producers, including Azerbaijan and Mexico, to participate in production cuts two years ago.
"It has been a surprise to see Russia in this country shaping the oil markets, but the passage of time is resulting in new alliances and new leaders," said Andrew Lipow, an experienced oil analyst in Houston . "Russians use their diplomacy and production capacity at high prices."
In June, the same group reopened the tap, adding production to prevent prices from becoming too high. Russia has assumed a key negotiating role in front of Saudi Arabia. Of the 600,000 barrels a day of crude oil that OPEC and the Russian-led group agreed to pump, about 200,000 barrels came from Russia.
The fact that Russia was so quickly able to add production – and theoretically close it in theory – raises Moscow's credibility as a heavyweight in the world's oil markets, a role it did not occupy during decades. Saudi Arabia, which exports much more than any other country, remains essentially the central oil bank, but Russian oil policy is now important to the rest of the world.
New Russian production and rising prices benefited its economy and President Vladimir Putin, who often praises Russia's new record in oil production. Driven by oil stocks, the Moscow Stock Exchange hit a record high on Tuesday, despite a weakening currency and a slowdown in economic growth. Russia's oil and gas revenues represent about 40% of the national budget. In August, it reached 5,500 billion rubles (83 billion dollars), up nearly 50% compared to the same period last year.
The government has invested the reserve of oil in the reserves to reinforce the defenses against the new western sanctions and the volatility of the financial markets. These new oil reserves spared Russia from the worst turbulence in emerging markets around the world.
Currency depreciation and rising production flooded Russian oil companies with record ruble earnings, boosting stock prices and long-term production potential. Russian energy stocks have risen 37% this year, according to the Moscow Stock Exchange. In contrast, companies linked to the real economy, such as banks and supermarkets, recorded declines close to double digits.
"The financial fundamentals of Russian oil companies are currently among the best in the industry," said Ildar Davletshin, energy equity analyst at Wood & Co. in London. "They would like to see even bigger production quotas, to take even more part of the decline in Venezuelan and Iranian production."
The windfall may not last long, as the Kremlin is seeking more of the companies' oil windfall as the country continues to face the pressure of sanctions, Davletshin said.
At the moment, Russian oil companies have used the extra rubles to direct dividends, buy back shares and provide for incremental increases in capital spending, mainly to improve refineries and search for new deposits.
In the run-up to the new OPEC meeting, Russian Energy Minister Alexander Novak said he would like things to stay as they are. In recent weeks, he said Russia is satisfied with current prices and its production quota.
"The price objectively reflects the situation in the market," Novak told reporters last week. "We see that the crisis period caused by the fall in prices has been overcome."
Write to Anatoly Kurmanaev at [email protected]
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