Russia's Economy Ministry will increase its forecast for the price of the country's Urals oil blend for 2018, following the extension of the OPEC/non-OPEC production cut agreement extension, announced yesterday in Vienna.
Economy Minister Maxim Oreshkin said the new price level the ministry will work with will be above US$50. Previously, it was US$43.80 a barrel. Oreshkin recently warned the production cut agreement was harmful for the Russian economy as it discouraged oil companies from making new investments.
Yesterday, OPEC and its partners from the Vienna Club, which last year agreed to reduce crude oil production by a combined 1.8 million bpd to relieve the global supply glut and improve prices, extended the cuts until the end of next year, with a review of the latest deal planned for June 2018.
The decision was expected, despite some last-minute worry that Russia might be reluctant to sign up for a nine-month extension, and prices did not change in any significant way. In fact, Russia kind of got what it wanted: a six-month extension, seeing as the new deal will officially start in January, as per the agreement.
According to observers, this targeted a psychological effect: a 12-month extension sounds longer than a nine-month one, if it was counted from March 2018, when the first extension agreed earlier this year was set to expire. Related: BREAKING: OPEC Agrees To 9-Month Extension Of Oil Production Deal
Yet there are already differences of opinion between the leaders of the Vienna Club pack: Russia's Alexander Novak said the biggest question to answer now was how the deal would be unwound once global supply balance was restored. "It's clear that in any event, this process will not go on forever and that at some time it will all come to an end. Therefore, we need to prepare ourselves for this. Today, we understand that we need to see this process to its conclusion," he said as quoted by CNBC earlier today.
However, Saudi Arabia's Khalid al-Falih seems carefree when it comes to the unwinding bit. "It's way premature to design the exit strategy," he said, as quoted by Bloomberg. "As I mentioned we have upwards of 150 million barrels of inventories to draw."
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More