PRESS: Russian fin ministry opposes oil cuts deal prolongation

MOSCOW, May 25 (PRIME) -- Experts of Russia’s Finance Ministry are against prolongation of an oil output reduction deal of OPEC and non-OPEC states as it may lead to an increase in shale oil production and a slump of oil prices to U.S. $30 per barrel, Vedomosti business daily reported on Thursday citing the ministry’s presentation.

OPEC states agreed to reduce production by 1.2 million barrels daily to 32.5 million barrels in November 2016. In December 2016, 11 non-OPEC countries agreed to cut their combined output by 558,000 barrels, including Russia, which has agreed to slash production by 300,000 barrels daily compared with the level of October 2016. The agreement was concluded for January–June 2017 with possible prolongation.

On Wednesday, Oil Minister of Venezuela Nelson Martinez said that the ministerial monitoring committee for compliance with the agreement recommended prolonging it for nine months and retaining the scope of the reduction. The ministers of the countries are to make a final decision later on Thursday.

Russia’s Energy Ministry supports prolongation of the deal for nine months, but the Finance Ministry’s budget policy and strategy planning department doesn’t share the opinion, the daily said.

The department’s presentation says there is no sense in prolongation as it will cut oil reserves of member countries of the Organization of the Economic Cooperation and Development by 250 million barrels. As a result, the oil market’s demand will exceed supply by 1.9 million barrels a day supporting the “shale oil revolution 2.0,” Vedomosti reported citing the presentation.

The first half of 2018 will see an overproduction of about 700,000 barrels a day, an increase of reserves, and a slump of oil prices to about $30. The price of above $40 would be enough to balance supply and demand, but it would not lead to contraction of excessive reserves, the department said in the presentation.

The speed and activity of drilling in the U.S. mean a possibility of the country raising the production of crude and condensate by 1.5 million barrels a day, which is more than the growth of demand in the world of 1.3 million barrels a day. If current dynamics of launches of drilling rigs are kept, then the growth of daily production in the country will reach 2 million barrels already in July, the experts said as cited by Vedomosti.

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