Will fate of oil be decided in Moscow?

Will fate of oil be decided in Moscow?

OPEC meeting with non-members of the cartel on cutting oil production may be moved from December 9 to 10 from Doha to Moscow, this topic is now being actively discussed by OPEC and Russia, an informed source said.

The representative of the Energy Ministry declined to comment on this message, TASS reports with reference to Bloomberg.

Russia's position on joining OPEC's agreement will be voiced by December 9, Deputy Energy Minister Kirill Molodtsov told a conference in Moscow on Friday.

"Russian oil companies are actively working out details of how to enact the deal," he said, urging to let the sides peacefully finish working on questions.

On November 30, OPEC countries for the first time in eight years agreed to cut oil production to 32.5 million barrels per day. According to preliminary agreements, Russia is ready to cut production by 300 thousand barrels per day, other non-OPEC members also by 300 thousand bpd.

The deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, speaking to Vestnik Kavkaza, stressed that at present the Russian Federation is in a fairly comfortable position. "Firstly, we have pledged to cut production only in the first half of 2017, that is, we have no obligations for the second half, and accordingly, the average annual production can be significantly higher than the decline in production in the first half," he explained.

The expert pointed out that there is also a negative side of a high level of production in Russia. "Cutting production by 300 thousand barrels per day will provide an average level in of about 545 million tons in the next year, but at the current 11.2 million barrels it could be 558 million tons. The Energy Ministry has a quite careful position about such a significant production growth, because a fast output growth weakens the position of those who advocate the reform of taxation, because it shows that the oil companies have a margin of safety, if they are able to increase oil production even in the deteriorating conditions," Alexey Belogoryev said.

"Therefore, I think that the Energy Ministry and the government as a whole are even pleased that production will be slightly reduced in the next year. However, given the fact that in the second half Russia will either refuses artificial reduction of production, or the reduction is reduced, in the end of year output is likely to be higher than this year. That is why Russia is in a comfortable conditions now," the deputy director of energy policy of the Institute of Energy and Finances concluded.

Sberbank CIB analyst Valery Nesterov, in turn, drew attention to the difficulties, which the Government will face during the implementation of the agreement with OPEC. "Officially, we do not have any legal possibility to order oil producers to reduce production. There are only interpretations of the agreement to cut production, for example, it can be viewed as a rejection of the production growth in the next year or as a reduction of the current oil production level," the expert said.

"The oil market remains unpredictable. A major stabilization of the market can be expected in the second half of next year, already after a huge surplus would decline and undue stocks of oil and petroleum products would be eliminated.There will be less oil from OPEC countries, but if there is shortage of oil, they will throw these stocks, and it also will restrain rising oil prices," Valery Nesterov warned.

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