Russia proposes oil output hike to OPEC+
Russia plans to propose increasing oil production by the OPEC+ deal members by 1.5 million barrels per day (bpd), the Russian Energy Minister Alexander Novak said.
"The market is growing, (oil) demand is growing and we already see a balance in the market," Novak said. The minister did not say how much Russia may increase its production, adding that it depends on each company’s capacity.
He also said that it would be reasonable to introduce increases in the third quarter when oil demand is highest and to meet in September to see how the market has reacted.
Russia’s energy minister reiterated that OPEC should consider a 1.5 million-barrel-a-day increase to output quotas because the market is almost balanced.
Novak stressed that high seasonal demand could translate into a supply deficit next quarter if OPEC and its allies don’t move to raise production.
Russia’s push for a big ramp-up contrasts with the more modest increase being debated by OPEC ahead of this week’s summit. Members are discussing a proposal to deliver 300,000 to 600,000 barrels a day of additional oil to global markets over the next few months, according to people briefed on the talks.
Russia’s proposed 1.5 million-barrel increase would be allocated proportionally among all members of the group. That means only about two-thirds of the volume would likely flow to the market because countries including Venezuela and Mexico are unable to raise output.
Earlier, Bloomberg wrote that Iran, Venezuela and Iraq intends to block a proposal to increase oil production. But Novak said that he had “no official information” that some countries would block a decision to boost output.
A senior analyst of 'Uralsib Capital', Alexei Kokin, speaking to Vestnik Kavkaza, noted that the format of OPEC + found itself in an unexpected situation, when the total oil production by 2.8 million barrels per day is below the quotas established in 2016. "The decision to cut production is overfulfilled by at least 1 million barrels - none of the members of the agreement expected this. Even if we raise the total production by 1.5 million barrels per day, it will still be 1.3 million barrels a day lower than it should be, according to quotas," he drew attention.
Nobody could have expected that Venezuela's output will decline to that low, that oil production will decline both in Mexico and Angola. In fact, only Russia, Saudi Arabia, Kuwait and the United Arab Emirates are able to increase production substantially," Alexei Kokin said.
In this regard, the problem of OPEC + is not how the market will react to the increase of quotas, but how to achieve the growth of total production after its fall. "Novak is guided by the demand estimates in the second half of the year, given by the IEA or OPEC, his proposal is reasonable enough, as it will help to avoid a deficit, but it is unclear how to do it. The US Department of Energy does not see any risk of supply shortages and rising prices, some analysts say that consumption growth in China, India and other countries will start to decline by the end of the year due to high oil prices and trade wars. So it is likely that Novak's offer will not be taken literally," the senior analyst of 'Uralsib Capital' said.
The expert added that it is hardly worth considering this proposal as the beginning of Russia's soft exit from the deal. "I would say that Novak's statement is not an attempt to abolish quotas, just to increase them, which indicates the desire to transfer interaction between producing countries to a permanent regime," Alexei Kokin concluded.