Novak: oil extraction freeze to reduce overproduction

 Novak: oil extraction freeze to reduce overproduction

The head of the Ministry of Energy of the Russian Federation, Aleksander Novak, said that if oil producers agree on an oil extraction freeze, the refining of the raw materials will drop by 1.3 million barrels per day.

The minister said that Russia, Saudi Arabia, Qatar and Venezuela agreed to freeze oil production at a recent meeting in Doha. Novak said that "if there are no additional supplies, then this imbalance and overproduction will decrease at a minimum of 1.3 million barrels per day," RIA Novosti reports.

"It will be a positive signal which is clear for the market of what will happen and not violate any market principles," he added.

Novak also said that consultations among oil-producing countries on the freezing of extractions should end by March 1.

According to him, Iran has a constructive attitude to the proposals for freezing oil, but has not yet expressed readiness to join the arrangements.

The head of the Ministry of Energy also said that an oil price of $50 per barrel would suit consumers and exporters in the long term, TASS reports.

Earlier, Russian Deputy Prime Minister Arkady Dvorkovich said that $60-70 per barrel is an achievable price. "But it is achievable only in a new cycle of global economic growth and after investment in the oil sector stabilizes at a new equilibrium level," he noted.

At the same time, Russian Economy Minister Alexei Ulyukayev, in his turn, called $40 per barrel the highest possible price for oil.

A senior fellow at the Energy Policy Branch of the Institute of Economics of the Russian Academy of Sciences, Ivan Kapitonov, in conversation with the correspondent of Vestnik Kavkaza suggested that in making such a forecast, "Alexander Novak proceeds from the OPEC statements for February." "Accordingly, there is a delta between supply and demand of about 1.3 million. That is, there is no secret or mystery. If supply and demand come together, then there will be grounds for a rise in prices to $50-60. It would be very useful to the economies of most OPEC countries. It is unlikely that the price will be higher than $60 per barrel, because as soon as it jumps up, we may observe growth in US production, which, respectively, compensates for the efforts of the rest of the world to reduce supply," he suggested.

"The point is to follow the demand, which is growing. It's possible to slowly increase oil production. The overproduction has happened due to the fact that the Saudis have squeezed the US from this market. In fact, this goal has been achieved, and if we don’t see production growth in the US, the market will be stable," the expert added.

According to Kapitonov, "stabilization and further growth are possible in the second half of 2016." However, even in the case of an increase in prices, it will be unlikely to achieve the level of $70. "Due to the fact that inflation affects it, we will see $70 and $80 per barrel, but not this year, maybe in two years," Ivan Kapitonov concluded.