CRUDE markets are in the midst of thunderstorms. Output remains robust. Expanding crude supplies from the Atlantic basin, North Sea and Nigeria - as per data compiled by Bloomberg - are casting spell on the overall energy scene. The International Energy Agency is now forecasting non-OPEC supply to average 58.1 million bpd this year, as against 57.5 million bpd, forecasted only in July. And with China's crude imports falling 13.4 percent in August from the previous month to 6.29 million bpd, prospects of a return to normal appeared still dimmer in near term. A glimmer of hope though arose when international press reported of ongoing discussions between Russia and OPEC, to 'stabilize' the markets. Arkady Dvorkovich, the Russian deputy prime minister and the head of the country's economic and energy strategy, told the press last week that his country was in constant talks with OPEC in order to bring about a "more rational policy." However, he was not forthright on the issue of coordination. "Our consultations do not imply directly that we are going to see any coordinated action. Perhaps 'yes', perhaps 'no', most likely 'no'," he said while speaking at the Ambrosetti forum of world policy-makers. "We are sending signals to each other," Ambrose Evans-Pritchard of The Telegraph quoted him as saying. However, Moscow insists, it cannot switch off or reduce output from its fields easily, given the harsh weather in the Siberian fields. Nor, it emphasizes, it could order drillers to slash production as the companies involved in drilling were answerable to their shareholders and not Kremlin. However, many within OPEC dismiss this as just a negotiating ploy. However, in his presentation Dvorkovich did not close the door altogether of some sort of arrangement. He hinted that Russian output cuts could be on the way. "We are not going to cut supply artificially. Oil companies will act on their own. They will look at market forces and decide whether to invest more or less.' And then he added: "If prices stay low, it is in the nature of oil companies to stabilize production, or even to cut production," he told the well-informed audience. And eventually, this may happen by default, writes Evans-Pritchard. The main Russian wells in Western Siberia are Soviet vintage and depleting at a rate of 8-11 percent a year. Sanctions have paralyzed new investments in the Arctic and the Bazhenov shale basin. Contours of the an emerging realpolitik entente between Saudi Arabia and Russia, with indeed major implications for the global oil markets, are thus visible, Evans-Pritchard points out. However, the euphoria turned out only to be short lived, as a senior Russian official ruled out cooperation on production cuts with OPEC. While addressing the FT Commodities Retreat in Singapore, former Russian deputy prime minister and the current OAO Rosneft Chief Executive Officer Igor Sechin, a close ally of Russian President Vladimir Putin, revealed that OPEC had proposed Russia to become its member, but Russia was not going to join the OPEC. He also made it abundantly clear, Russia will also not work with OPEC to curb the global oil glut even after prices hit the lowest level since the financial crisis. Markets have taken the cue. And as output continues to be strong, with no real sign of diminishing, markets are emitting distress signals. The single product economies of 'most - if not all' oil producing countries are faced with real challenges. With consequences evident, most are now taking steps to be able to endure the downturn. In a meeting with his Russian counterpart Vladimir Putin recently, the Venezuelan President Nicolas Maduro proposed a summit of oil producers, including Russia, to address the price slump. The two also agreed on “initiatives” to bring stability to the market. OPEC kingpin Saudi Arabia is also taking the challenge seriously. The IMF is of the view that the Kingdom was likely to run a deficit of 19.5 percent of GDP in 2015. Last month Fitch Ratings too lowered the outlook on Saudi Arabia's sovereign ratings to 'negative' from 'stable' citing fiscal deterioration. Lower oil prices and increased spending are forecast to widen the general government deficit this year, the agency noted, cautioning deficits would stay in double digits if there was no consolidation. And though given its financial muscle and reserves, Riyadh can definitely endure the downturn for years, yet the Kingdom is fully alive to the daunting challenge. The country was well-prepared to cope with the plunge of crude prices and policymakers were taking it seriously, Saudi Finance Minister Ibrahim Alassaf told CNBC Arabia during a visit to Washington with King Salman, earlier the month. Saudi Arabia's government is cutting unnecessary expenses and delaying some projects to compensate for low oil prices, though projects that are important for the economy will go ahead, Alassaf assured. "We have built reserves, cut public debt to near-zero levels and we are now working on cutting unnecessary expenses while focusing on main development projects and on building human resources in the kingdom," he added. "There are some projects like the ones that have been approved a few years ago and haven't been carried out until now - that means such projects are not currently necessary and can be delayed," he added. As per reports, some infrastructure projects may feel the brunt. For example, a plan to build soccer stadiums around the country has been scaled back, a $201 million contract to buy high-speed trains was cancelled, and expansion of an oilfield has been slowed, Reuters reported in recent weeks, quoting sources. In order to plug the budgetary deficit, Saudi Arabia has also resorted to issuing sovereign bonds for the first time since 2007. Minister Alassaf also added that the government would continue issuing bonds and might also sell Islamic bonds, or sukuk, to finance specific projects. "There may be an issue (of sukuk) before the end of 2015 but I cannot say this will continue - it all depends on the need to finance the budget deficit," he stressed. And in the meantime, the Kingdom is reportedly considering to reduce subsidy on gasoline to domestic consumers. The debate is old. Many have been pushing it as a tool to control the galloping domestic gasoline consumption. The matter had taken on additional importance after United Arab Emirates reduced subsidies and allowed gasoline prices to rise last month. The global landscape has changed. The domestic horizon is changing too.
