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Russia’s oil companies that are taking part in the OPEC-led production cut effort will not receive any compensation for the reduced output, Energy Minister Alexander Novak said. A preliminary agreement for the extension—until end-March 2018—was announced by Novak and his Saudi counterpart, Khalid al-Falih, last week.
Speaking to media, Novak added that the extension does not aim so much to prop up prices as it did to rebalance the market, shrinking the persistent glut. Also, he said, another three to five oil-producing countries may join the international effort. According to Reuters sources, one of these will be Turkmenistan. The Central Asian nation produced, as of December 2016, 245,000 barrels of crude daily.
Novak sounded optimistic about the success of the current production cut agreement: he believes that by July 1, global oil inventories will have fallen by 100-120 million barrels, even though so far in 2017, they have actually increased on the back of higher production from non-OPEC producers as well as output growth in the three exempt OPEC members: Libya, Nigeria, and Iran.
The latest data for OECD from the Oil and Gas Magazine shows that global inventories stood at 5.657 billion barrels of crude at the end of March, slightly down from 5.682 billion barrels at the end of 2016.
The energy minister’s optimism, however, was cautious. Reuters quoted him as saying that the market will not rebalance by the end of this year. This is probably why he sees the nine-month extension as making more sense than another six-month production cut.
OPEC, Russia, and another 10 non-OPEC producers agreed last year to reduce their combined output by 1.8 million barrels daily in a bid, they said, to bring sully and demand closer to equilibrium. The question of oil prices has not been acknowledged as central to the move but is widely seen as the top priority for the participants in the agreement.
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.