UPDATE: Rosneft may run short of oil for export, if oil cut deal prolonged

(Adds comment from Rosneft in paragraphs 6–7)

MOSCOW, Feb 15 (PRIME) -- Rosneft may lack crude to fulfil its export obligations, if the OPEC oil cut agreement is prolonged as it has to provide for the local market, an analyst at Thomson Reuters Alexander Yershov said.

“Russia’s internal market is large, and Rosneft is the major oil supplier. It will be very difficult for the company to balance accounts in a situation of permanent output cuts,” the expert said, adding that lower oil exports may result in redistribution of global crude market shares in the long run.

OPEC states agreed to reduce their oil production by 1.2 million barrels daily to 32.5 million barrels in January–June 2017 at a meeting on November 30, 2016. Russia joined the agreement on December 10, 2016 with a promise to cut output by 300,000 barrels daily. The agreement was concluded for half a year with an option to be extended.

Yershov said Rosneft is already suffering from the lack of crude for export needs and has recently freed several batches of oil only thanks to lower supplies to Gdansk because of technical problems at a Lotos refinery.

“If the production cut agreement is prolonged, Rosneft will be unable to find further batches for export thanks to repairs at Russian refineries, this is no bottomless well,” Yershov said. “There are a lot of export obligations, while there is a lack of resources.”

A spokesperson for Rosneft told PRIME that the company produces enough crude oil to fulfil all its contracts, despite the oil output cut agreement.

“The company has sufficient crude volumes to carry out all contract obligations… Rosneft completely fulfils its obligations under both export and domestic supply arrangements,” the spokesperson said.

Yershov also said that a significant growth in oil output before the start of agreement implementation allows Russia to pass the production cut period without losses.

“Such growth right before the start of reduction given a natural winter fall in output allows us to weather the cuts painlessly, without cutting investment,” he said.

The countries that agreed to restrict production monitor production mainly, while market balance depends on exports, Yershov said. Russian exports continue to grow.

“Oil exports keep hitting all-time records and are growing at a high rate at the beginning of the year despite lower production,” he said. “Even March volumes, which were expected to shrink, are starting to grow.”

The key indicator for the Russian economy is oil exports, not production, but even if the agreement between OPEC and non-OPEC states is prolonged, it will not affect export volumes strongly.

End