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OPEC Pact Exit Could Take Months Of Negotiation

OPEC

Exiting the OPEC output reduction deal could take between 2-5 months of negotiations, Russian Energy Minister Alexander Novak said on Monday, according to a report by Reuters quoting Interfax.

OPEC members and roughly a dozen non-members agreed to extend 1.8 million bpd worth of cuts through the end of 2018 during a November meeting last year. That arrangement is due for a “review” in June, which could create an opportunity for some producers to leave the pact.

“It could take three, four, five months or maybe just two (to exit the deal),” Novak said in an interview with Interfax. “Our goal was to take surplus oil away from the market. At the moment, we see that this goal is achieved by two thirds. We cannot rule out that the target level for global oil reserves may be reached by the end of 2018.”

A decision to end the deal at the end of 2018 would necessitate a gradual increase in output in order to keep prices afloat, the minister explained.

Gazprom Neft—the Russian oil company that has publicly expressed frustration with the OPEC-Russian deal to curtail oil supply—does not rule out that the joint cooperation pact could last until the first half of 2019.

Related: The Shale Boom Might Not Last Long

Before the extension of the production cut pact in November last year, Gazprom Neft had been hinting that it was not happy with the deal as it had to sacrifice production growth plans as Russia and OPEC restrict oil supply to draw down the global overhang.

“Gazprom Neft, as you know, has, in recent years, aggressively expanded production — by seven to nine percent per year — and, of course, we had planned to continue growing at that same rapid pace. Following the OPEC agreement, instead of growing at eight to nine percent, we have increased production by just 4.5 to five percent. Which is, without a doubt, a negative factor for us,” CEO Alexander Dyukov said.

By Zainab Calcuttawala for Oilprice.com

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  • Mamdouh G Salameh on February 13 2018 said:
    The OPEC/non-OPEC oil production cut agreement has been a great success in absorbing the glut in the global oil market. In fact, the re-balancing of the market has been achieved six months earlier than was expected. Moreover, it helped oil prices trend upward underpinned by a robust global economy and a fast-rising global oil demand.

    Against the above background, OPEC members led by Saudi Arabia and non-OPEC producers led by Russia are not going to rush to exit the production cut agreement any time soon. The agreement will still be there even in 2019 but in a modified shape to reflect changing oil market conditions.

    The historically important Moscow-Riyadh cooperation in oil and gas is unprecedented. Without Russia’s support, overall compliance with the OPEC production cut agreement would have been very low, leading to even lower oil prices.

    A decision to end the pact is not yet in sight.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics t ESCP Europe Business School, London

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