Cracks Emerge In OPEC-Russia Oil Output Cut Pact

While OPEC and Russia are leading the production cut deal, Russia’s estimates for $40 oil doesn’t bode well for the future of the output pact that the cartel and a dozen non-OPEC producers led by Russia forged at the end of last year, Robin Mills writes for Bloomberg View in an article published on Monday.  

Russia’s largest oil producer, Rosneft, expects oil prices to average between $40 and $43 per barrel next year, and is preparing for such prices, CEO Igor Sechin said earlier this month. Sechin’s oil price forecast is basically in line with Russia’s economic estimates from earlier this year.

At the beginning of June, Russia’s Economy Minister Maxim Oreshkin said that Russia was “actually ready to live forever at oil prices $40 or below,” as oil at US$40 is the current underlying key assumption of Russia’s economic policies. A couple of weeks later, Bank of Russia Governor Elvira Nabiullina said that Russia’s central bank was keeping its oil price forecast for this year at US$50 per barrel, and still believes that the price of oil will drop to roughly US$40 in 2018-2019.

OPEC’s de facto leader Saudi Arabia, however, seems more weakly positioned, because it requires higher oil prices to plug its budget deficit and to obtain a high valuation for Aramco in the IPO planned for next year.

At last week’s meeting, the OPEC/non-OPEC joint panel on monitoring the cuts was said to be ready to consider informal monitoring of crude oil exports, in addition to supervising compliance to production cuts.

Related: Failed Oil Price Recovery Slams Energy Stocks

After the meeting, OPEC congratulated itself on its high compliance, noting a further reduction in global oversupply. As usual, the cartel said that “All options are left open” to bring the market back to balance.

According to Mills, the deal would likely be extended beyond March 2018, “but the Saudis are increasingly bearing the burden of a deal they cannot afford to walk away from.”

By Tsvetana Paraskova for Oilprice.com

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