Russia yet to finalize stance before OPEC+ considers deeper oil cuts

Russia agreed to reduce output by 228,000 barrels per day (bpd) to about 11.18 million bpd in 2019 as part of cuts agreed by the group known as OPEC+. (AFP)
Updated 03 December 2019

Russia yet to finalize stance before OPEC+ considers deeper oil cuts

  • Russia agreed to reduce output by 228,000 barrels per day to about 11.18 million bpd in 2019
  • But it pumped more than its quota in November, producing 11.244 million bpd

MOSCOW: Russian Energy Minister Alexander Novak said on Tuesday he expected this week’s meeting of OPEC oil producers and their allies to be constructive but said Moscow had yet to finalize its position in talks on possible additional supply curbs.
Russia agreed to reduce output by 228,000 barrels per day (bpd) to about 11.18 million bpd in 2019 as part of cuts agreed by the group known as OPEC+. But it pumped more than its quota in November, producing 11.244 million bpd.
The Organization of the Petroleum Exporting Countries, Russia and other producers, which previously agreed to reduce combined output by 1.2 million bpd or 1.2 percent of global demand until March, hold discussions in Vienna on Thursday and Friday.
“I will not tell you anything now as we are still finalizing our position,” Novak told reporters. “Let’s wait ... But I think the meeting, as usual, will be of constructive nature.”
Two sources said on Monday that OPEC+ was discussing cutting output by at least an additional 400,000 bpd, as Riyadh seeks high oil prices to balance its budget and help Thursday’s pricing for Saudi Aramco’s initial public offering (IPO). The Saudis have been lobbying others to deepen cuts.
Novak said Russia’s average cut was 195,000 bpd in November and said Moscow aimed to comply fully with the quota in December.
Russia earlier called for a change to the way its output is measured to exclude gas condensate, which accounts for about 7 percent-8 percent of Russia’s total oil production, or about 800,000 bpd.
Novak told reporters he planned to discuss excluding condensate from Moscow’s quotas at the OPEC+ meeting.
By excluding condensate and only taking into account oil production, Novak said Russia’s output could be about 225,000 bpd to 230,000 bpd less in December.
“That said, we will discuss with our colleagues to take into account our statistics the same way as for OPEC countries — excluding condensate,” the minister said.
Vagit Alekperov, chief executive of Russia’s No.2 oil producer Lukoil, said in comments broadcast on Tuesday that it would not be expedient to deepen global oil production cuts in the winter season, especially for Russia.
Russian data cites production in tons. Reuters uses a conversion rate of 7.33 barrels per ton of oil.


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.