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Declining oil production in some large producers is keeping the global oil market “fragile”, Russia’s Energy Minister Alexander Novak said during an industry event this week. Venezuela was one obvious example that Novak mentioned, as quoted by Reuters, but, the official added, geopolitical factors are also contributing to heightened oil market sensitivity.
“We observe such situation in Mexico, where the decline more than halved from the forecasts on 2018. In Venezuela production is falling quite strongly, by 50,000 barrels per day. This means that the market is still not balanced in long-term perspective.”
On the flip side, according to Novak, OPEC+ managed to restore balance to the market thanks to the 2016 production cut agreement. Current prices, he said, were positive for both producers and consumers, and no producer was willing to tip the market into an overheating. Yet Novak also noted the Iran sanctions as a driver of market uncertainty.
“This is huge uncertainty on the market – how the countries, which buy almost 2 million barrels per day of Iranian oil will act. Those are Europe, Asia Pacific region ... There is a lot of uncertainty. The situation should be closely watched, the right decisions should be taken.”
Still, S&P Global Platts quoted Novak as also saying that OPEC and its partners, including Russia, could ramp up production to offset lost supply from Iran. "There is a fairly significant combined potential by the countries [participating in the deal] that can increase production and this potential can be used if necessary," Novak said, adding he did not know what deficit reporters were talking about.
According to him, despite the situation with Iran, he did not expect any actual supply shortage, in part thanks to a seasonal decline in demand that will serve as natural regulator of prices and, apparently, thanks to the ability of OPEC+ to deploy spare capacity if needed. Russia alone could add 300,000 bpd to its production within 12 months, Novak noted.
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.