Russia ready to support oil output deal as OPEC meeting looms

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Russia said on Friday it is ready to support extending a deal among oil producers on cutting output, less than a week before OPEC meets in Vienna to discuss policy, although it has yet to say how long it should be for.

Russian Energy Minister Alexander Novak said that Russia would discuss the details of an extension of the global deal on Nov. 30, but made no mention of how long this should last beyond its March expiry.

“We see that 50 percent of oil stockpiles have been removed, the oil price has reached its balance,” Novak told RBC TV.

The Organization of the Petroleum Exporting Countries, Russia and several other major producers have cut their combined output by about 1.8 million barrels per day since January to reduce bloated inventories and boost oil prices.

“However, the targets on rebalancing the market have not been reached. Everyone supports the extension, so that the targets are finally reached,” Novak said, adding that “different options are under consideration”.

Saudi Arabia has been pushing for an extension for nine months until the end of 2018, a position President Vladimir Putin had suggested in October that Russia backed.

Russia, heavily reliant on oil revenues but wary that any sharp rise in prices may be followed by another punishing collapse, has since sent mixed signals about timing.

Russia’s TASS news agency reported earlier this week that oil producers and the Russian Energy Ministry had discussed a six-month extension..

Then on Thursday, Russia’s Economy Minister Maxim Oreshkin said Russian economic growth had been hurt by the deal because it dampened investment - the first clearly negative assessment of the pact by a senior Russian official.

Novak’s comments on Friday were made in Bolivia where he is at a Gas Exporting Countries Forum of leading gas producers.

The Russian minister had met the Qatari and Venezuelan oil ministers in Bolivia, as well as an official from the UAE, Russian news agencies reported.

Stumbling block

One of the stumbling blocks for extending the OPEC-led deal is a boom in US oil production, which has jumped by 15 percent since mid-2016 to a record 9.66 million bpd.

US producers, which scaled back output with the price slump after mid-2014, have ramped up production as oil prices climbed. Higher US output undermines the impact of output cuts and erodes market share for others, like Russia.

“Make no mistake, expect the dog fight for the global markets once the deal expires,” a source at a Russian oil major said about scenarios once the deal on curbing output expires.

A key task of the agreement, lifting prices, has been achieved. Benchmark Brent crude, which tumbled from well above $100 a barrel in 2014 to about $27 in 2016, is back above $60.

Russia’s budget is based on an oil price of $40 per barrel, suggesting there is a good cushion against a sudden price slide.

Novak said on Friday he expected the oil price to remain between $50 and $60 a barrel this and next year.

But Moscow has had to deal with economic and social fallout caused by price falls in 2008-09 and since 2014, said Chris Weafer at Moscow-based Macro-Advisory.

“The damage from a third collapse would likely greatly outweigh the financial gains to be made from higher oil in the meantime,” he wrote.

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