OPEC deal goes under spotlight in St. Petersburg

The Organization of the Petroleum Exporting Countries (OPEC) agreed on May 25 with 10 producers from outside the group led by Russia to extend their production cuts of 1.8 million barrels per day (bpd) for another nine months, ending in March next year.

It was clearly stated by many officials and oil executives during the forum that the cooperation between OPEC and non-OPEC at this scale was unprecedented. Moreover, this cooperation now is expected to last beyond March 2018, according to statements from Saudi Energy Minister Khalid Al-Falih and his Russian counterpart Alexander Novak.

The support OPEC is getting from Russia is huge and this comes from President Vladimir Putin himself, who assured Al-Falih after two meetings that the cooperation will continue even if the deal is over, according to the Saudi minister.

The Russian government values the deal with OPEC and sees it as a key factor in saving oil prices. “If we had not extended the deal, I believe we would have seen the price fall, not 8 percent, which you mentioned, but probably 50 percent,” Novak told Bloomberg television in an interview during the event.

The nine-month extension of the output caps was “optimal,” and participants are still able to extend or shorten the agreement if necessary, Novak said in the interview.

As for oil prices, Novak said that $50 a barrel is “good for the market.” He also expects to see oil trading at between $50 and $60 a barrel as demand grows and inventories fall. But he added that the main “task is to remove the inventory surplus.”

However, the CEO of Rosneft said OPEC oil producers and their allies could be wasting their efforts by cutting output because rising US production threatens to deliver a wave of new supply and could add up to 1.5 million bpd to world oil output next year.

“The agreement between OPEC and nonOPEC countries, with the biggest contribution from Saudi Arabia and Russia, has given the market a breather but it is hard to consider these as systematic measures that would lead to long-term stabilization,” Sechin told the forum on June 2.

Sechin still views the agreement and its impact on the oil market as “positive,” according to an interview with the Financial Times on June 4. Yet, Rosneft would step up production if the agreement comes to a sudden end, he told the newspaper.

“Well, if the question is how OPEC is going to exit from these arrangements abruptly, we will also be prepared. If something goes wrong, we will not let them occupy our markets. We will defend ourselves,” the newspaper quoted him as saying.

JEDDAH: Aside from Igor Sechin, the CEO of Russia’s largest oil company Rosneft, it seems that the majority of the attendees at the St. Petersburg International Economic Forum in Russia last week are satisfied with the latest deal made in Vienna by the world’s major oil producers.