Russia proposed to work out new principles jointly with OPEC and non-OPEC nations to continue cooperation even after the current oil output cut deal expires, Russian Energy Minister Alexander Novak said.
"It is necessary to work out new framework principles for continued steady cooperation between OPEC and non-OPEC even after the expiration of the Vienna agreements," Novak told an energy conference with OPEC held in Moscow, RIA Novosti reported.
On November 30, 2016, OPEC countries agreed in Vienna on reducing oil production by 1.2 million barrels per day. Non-OPEC countries agreed to reduce output by 558,000 barrels a day. Russia pledged to cut production by 300,000 barrels daily. At the meeting in Vienna on May 25, the OPEC and some non-OPEC producers agreed to extend supply cuts of 1.8 million barrels per day until the end of the first quarter of 2018.
A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, speaking to a correspondent of Vestnik Kavkaza, said that a new format of permanent dialogue between OPEC and free oil producers is rather a kind of personal project of Alexander Novak. "OPEC now produces only 40% of the world's oil output. Of course it has little influence on the market. Therefore, we see some kind of OPEC 2.0, to make the format that was achieved in November 2016 permanent. We see that when Russia and other countries plus OPEC reduce their output, the US shale miners start to use it, they become profitable and increase their production," the analyst said.
"It turns out that we just give up them our place in the market. I think that this situation cannot continue indefinitely. Sooner or later the question will arise: why do we reduce production volumes when it leads to the fact that we lose market share? Maybe all of these agreements will fall apart and everyone will be on its own again. Therefore, Novak most likely does not expect that this certain organization will exist in a new format for a year or a decade. We need constant press events to influence traders," Igor Yushkov explained.
"The more positive press events we have, the more expensive oil becomes, because futures are not real contracts. So I think that in fact he does the wright thing in terms of information policy. It is even more important than actually cutting production or freezing it, because shale projects generate a lot of news, which often leads to a decline in oil price," the leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation believes.
A senior analyst of 'Uralsib Capital', Alexei Kokin, in turn, said that the relative success of the OPEC + agreement, which was reached in the late November, inspired Russia and other non-OPEC countries. "That's why Russia thought about preserving some format of interaction, which if necessary would allow to return to restoration of maximum output levels. That is, apparently, Russia would not like to formally join an organization, but would like to to interact with OPEC to have an opportunity to purposefully limit production in difficult situations," the expert said.
Speaking about whether we should expect that the new format will be required after the Vienna agreement, the analyst also noted that it will depend on many factors, but it is premature to talk about them now. "I think that if the reserves of petroleum products return to the average level in five years, as OPEC planned, there will be no extension, because a certain danger is that prices can react to a drop in stocks too strongly, and it stimulates production growth in the US and Canada. So it seems to me that there is a possibility of an extension, but in principle, if everything goes according to the plan of OPEC and Saudi Arabia, then there will be no need for an extension," Alexei Kokin concluded.
