A touted oil production freeze by Saudi Arabia might not be enough to boost crude prices, even if it goes ahead, the Russian finance minister told CNBC.
Anton Siluanov spoke to CNBC Friday as media reports circulated that Saudi Arabia had offered to freeze oil output if rival producer Iran did the same.
Siluanov warned that even if the deal went ahead, any upturn in oil prices would be temporary, as this would encourage more production elsewhere.
“A freeze on the part of several countries … will not produce the effect that some people are anticipating … There is the possibility that there’ll be an increase in oil production as a result of shale oil and then the prices will fall again,” he told CNBC in Moscow.
Russia rivals with Saudi Arabia as the biggest oil-producing country in the world and has been hit hard by the downturn in crude prices since July 2014.
The finance minister said that Russia had budgeted for oil prices at $40 per barrel for the next three years, which he described as “conservative.”
“In our view, this is a balanced price at the moment. It’s a price at which the oil producers, especially shale oil producers, are at their capacity levels at the moment,” he told CNBC.
Crude prices have rallied this year but remain sharply above the peaks above $100 per barrel reached before the commodities rout began two years’ ago.
On Tuesday, Andrey Kostin, the CEO of Russian state-owned VTB bank, told CNBC that oil prices had bottomed and prices for some commodities were already rising.
“For oil … we don’t expect any further drastic cuts of prices to $20 or $30 or some such awful scenarios and also we see the increase in some such as coal, particularly coke, and some other important commodities of Russian export and Russian production,” Kostin said.
To spur production in the face of low prices, Siluanov told CNBC that Russia would offer tax incentives for companies to develop oil fields and to extract more from old fields.
Speculation of an output freeze among members of OPEC — of which Saudi Arabia is the de facto leader — have increased in the run-up to a meeting of major oil-producing countries in Algiers next week. Russia, which is not an OPEC member, will be at the meeting.
A previous attempt at an oil production pact failed in April when Saudi Arabia insisted that Iran participate. Iran declined, as it is aiming to boost output to pre-sanction levels of 4 million barrels per day by 2017. Its current production is seen at around 3.8 million barrels per day.
The Russian economy has slowed steadily since 2010 and shrunk on-the-year in 2015. It has been hit by international sanctions levied after Russia’s annexation of Crimea in 2014 and involvement in a pro-Russian uprising in Ukraine, as well as the drop in the oil price. Poverty has increased and inflation remains high, standing at 6.9 percent year-on-year in August, although it has slowed from a peak near 17 percent last year.
The International Monetary Fund sees the Russian economy shrinking by 1.2 percent in 2016, before returning to growth in 2017.
This month, S&P Global Ratings upgraded its outlook on the Russia’s credit rating to “stable” from “negative.”
“External risks to Russia have abated to a significant extent, while the country’s economy continues to adjust to the dual shocks of a lower oil price environment and sanctions imposed by the European Union and the U.S.,” S&P said in a report on the revision.