Russia to start easing oil-output cuts in July
It’s sticking to terms of the Opec+ deal reached in April
MOSCOW: Russia is determined to start easing oil-output cuts in July, sticking to the terms of the Organisation of the Petroleum Exporting Countries Plus (Opec+) deal reached in April, according to people familiar with the key producer’s position.
Opec and its partners struck a historic accord last month to slash supply as the coronavirus pandemic savaged demand. They agreed the cuts would taper from July. But Saudi Arabia has since sought to prop up the market with extra cuts and Gulf allies have followed suit. As Opec+ prepares to meet in two weeks’ time, members are weighing up whether to extend the curbs or ease them.
Three Russian officials and two people in the industry, speaking on condition of anonymity, said the nation’s position is to stick to the plan. Kremlin spokesman Dmitry Peskov told reporters on Tuesday the deal is “undoubtedly successful,” and said countries will look at how the situation develops before taking a decision at the June 9-10 meeting.
The April agreement, which marked the end of a price war between Moscow and Riyadh, helped to reduce the global glut and bolster the market. Brent crude traded around US$35.60 a barrel yesterday morning in London, more than 70% higher than a month ago, as the easing of virus lockdowns around the world slowly lifts demand. But prices at these levels still weigh on Russia’s budget.
On Tuesday, Russian oil companies discussed the future of the Opec+ deal with Energy Minister Alexander Novak, including the possibility of extending the deepest cuts for another two months, according to Kommersant. They didn’t reach a consensus, the newspaper said. Saudi Arabia, Opec’s de facto leader, has pressed for an extension, Kommersant said, citing a person it didn’t name.
Russia has traditionally preferred a cautious, wait-and-see approach before Opec+ meetings, often agreeing to proposals from its partners at the last moment.
While the crude surplus remains at about seven million to 12 million barrels a day, Russia sees global supply and demand potentially balancing in June or July, Novak said Monday.
Russian industry players are also cautiously optimistic about the recovery. The St Petersburg Oil Terminal, where fuel from key refineries is loaded onto ships bound for Europe, has recorded a sharp increase in European demand for some types of oil products such as diesel as lockdowns are relaxed.
“We see that the demand is approaching normal levels,” with the exception of jet-fuel consumption, which may take as long as three years to return to 2019 volumes, the terminal’s chief executive officer, Mikhail Skigin, said in an email.
Skigin expects Russia’s domestic refineries to return to normal operations this summer after widespread idling earlier this month.
The oil-production cuts have been painful for Russia, where producers have faced their greatest challenge in decades: shutting in a large number of wells without permanently damaging the fields. Russia is making about a quarter of the total Opec+ cuts.
Rosneft PJSC, which accounts for about 40% of the nation’s output, has so far just limited oil flows to comply with its quota. But within the next three months it will look into “full shutins and long-term conservation of some of the highest-cost projects,” chief financial officer Pavel Fedorov said this month. — Bloomberg