Russia will not abandon a deal with OPEC to maintain a 1.8 million barrels per day (MMBPD) reduction in crude production, even with crude prices rising, OPEC Secretary General Mohammed Barkindo said Monday.
A stronger-than-anticipated rally has raised concerns Russian oil producers will seek an exit from OPEC’s agreement with Moscow and other producers to limit output, Kallanish Energy finds.
Oil prices have risen nearly 60% since June, with Brent crude rising to three-year highs above $71 a barrel, prior to a pullback last week that wiped out its gains for 2018.
Worries have been compounded by rising U.S. crude exports that threaten to loosen Russia and Saudi Arabia’s hold on overseas markets at a time of strong economic growth and rising demand for petroleum products.
Barkindo said President Vladimir Putin and Russian Energy Minister Alexander Novak have assured him Russia won’t pull out, CNBC reported.
“I have heard and received assurances both from Mr. Alexander Novak and President Putin that they will remain committed to the OPEC, non-OPEC collaboration and the Declaration of Cooperation,” he told CNBC on the sidelines of the Egypt Petroleum Show in Cairo.
“They have proved this beyond any reasonable doubt through their high level of conformity to their supply adjustment, so I think there’s no concern here,” he said. “We are all in the same boat.”
Industry watchers have been wary of Russia’s commitment to the deal. The nation’s oil and gas giants are seen as reluctant participants in the agreement, which began in January 2017 and is slated to run through the end of 2018.
Russia vowed in 2016 to cut its output by 300,000 BPD, but unlike state-owned oil companies typical of OPEC, large Russian energy companies are publicly-traded.
The head of Russia’s Gazprom Neft on Friday said producers could adjust their commitments under the deal as soon as next quarter, Reuters reported. Gazprom CEO Alexander Dyukov said he hoped producers would agree to raise output since the market has essentially balanced after years of oversupply.
While it’s true many analysts believe oil supply and demand have reached a state of equilibrium, OPEC’s official goal is to shrink stockpiles of crude oil to the five-year average. On Monday, OPEC said inventories remain about 109 million barrels above that level. It warned the deal might not achieve its objective until the end of 2018.
Barkindo said it is in the interest of OPEC, Russia and other non-OPEC producers to continue coordinating policy even after the market rebalances.