Novak optimistic about OPEC's deal to limit oil output

 Novak optimistic about OPEC's deal to limit oil output

Russian Energy Minister Alexander Novak said after meeting OPEC counterparts he was more confident a deal could be reached between Moscow and the group on output to help lift world oil prices.

Speaking to reporters, Novak said an output freeze is one of the options under discussion, though he declined to give details or reveal at what level output would be frozen.

He said he was confident OPEC can reached agreement in Vienna on November 30, when it is due to meet to finalize a preliminary deal on output, but he said for Russia it was important the group stick to its agreements.

The group is near a consensus on capping production for at least six months.

Novak also said he had a productive meeting with Saudi Energy Minister Khalid al-Falih in the Qatari capital, which is hosting a summit of gas exporting countries.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, told Vestnik Kavkaza that despite the fact that now there is balance of supply and demand, the agreement to limit oil production in the exporting countries will be signed. "Right now, most likely, the negotiations are underway whether they agree to freeze or to limit production volumes," he recalled, adding that later OPEC proposed to reduce production to non-member countries.

"And there is a conflict: neither Russia nor anyone else is going to cut production. That is why there was a possibility that they will not sign anything, like during the previous meeting in Doha. That is why, now the negotiators are visiting each other to agree that they should sign at least something. I think that Novak said about it: he was in Doha, and the main issue there was whether Russia will sign anything. The minister today said today that Moscow is ready to sign the agreement only about "freezing" the volume of oil production," the expert believes.

According to him, Russia is agree to sign the freeze, "if others are agree". "Now it is move of  the OPEC countries, primarily of Saudi Arabia and Qatar. If the parties are agree that Russia freezes production volumes and OPEC reduces them, the agreement will be signed," Igor Yushkov concluded.

A senior analyst of 'Uralsib Capital', Alexei Kokin, in turn, warned about the serious risks that OPEC, Russia and other non-OPEC countries will not freeze oil output in the next year, but increase it.

"In October, OPEC continued to increase production to 33.6 million barrels a day. Russia is close to its maximum production level, and in October, it has already passed its peak. So, of course, it is absolutely necessary to reduce OPEC quotas," the expert said.

According to him, the key issue now is to determine the level - whether it will be 32.5 million barrels per day, or 33 million barrels per day. "According to the oil minister, Saudi Arabia prefers the level of 32.5 million barrels per day, that is a decrease of more than 1 million from its current level. I think it's real," Kokin said.

Moreover, even if the final agreement is reached, it will not affect the prices strongly, as the credibility of OPEC is not very high. "Maybe the markets will revive in the next month or two after it, the oil price will exceed $ 50," the analyst suggests.

"And then it depends on whether OPEC will fulfill the agreement. If not, then the price will decline to the current level. If yes, then the next year the prices will rise above $50, around $55. It is quite possible," the expert explained.

Kokin added that Russia will be able to quickly to freeze its output without any difficulties. "There are two opposing trends in the Russian oil industry. The main trend is the natural production decline in old areas, such as Western Siberia. If the Russian authorities and companies agree that the new fields will be put into operation slowly, then their increase in production will compensate production decline in old fields and there will be a certain stability of 11 million barrels per day," he said.

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