In his interview with TASS, Russian Energy Minister Alexander Novak spoke about what will influence the decision of OPEC and non-OPEC countries to cut output in 2019, whether Russia will help Iran continue exports of its crude under US sanctions, and which oil price is comfortable for both producers and consumers.
On future of OPEC+ deal
- The OPEC+ monitoring committee has recently met in Abu-Dhabi. Unlike your colleagues from the Middle East, you didn’t speak out in favor of cutting oil production in 2019. Is there a final stance on the issue today?
- Basically, all participants of the Abu-Dhabi talks have agreed that there is no need to make any serious joint statements because we can still watch the market in November.
This will enable us to develop a more or less common stance for discussing the deal ahead of the meeting.
- What exactly will you monitor?
- Inventories, exports of Iranian crude, and production in other countries. We will keep an eye on the oil price dynamics during that period, as well as on China and the US as far as their trade ties go. It is no secret that decisions on the issue can be made at the G20 summit. The decisions of central banks of various countries can also influence the market. That is, there are a lot of factors. .
- You’ve said that the oil price is one of the factors that affects Russia’s stance. Are you OK with the current price?
- To me, the current price range is comfortable for producers and consumers. The spike up to $86 (per barrel) was short-term, largely driven by the Iran factor. Now the prices have retreated, although uncertainty around Iran remains to some extent.
- Do sanctions on Tehran continue to have a strong impact on the market, or Iran supply fears have subsided?
- I think that most of this risk has been priced in already.
- Considering that the US has granted several countries wavers on sanctions, allowing them to import Iranian crude, does the threat of a supply shortage remain? What can you say about Iranian exports?
- We don’t know exactly what is going on with Iranian exports. It is only Tehran and buyers of its crude who have such data. It is not recorded daily but with little delay, meaning we will only see the November statistics in mid-December.
- Will you develop your stance on what to do in 2019 before going to the Vienna meeting in December?
- Of course, we need to develop our final position by the ministerial meeting. But even by that time, we will not have data on Iranian exports for November. That’s why we will have to rely on estimates of the OPEC+ technical committee. There will be no independent sources.
- Saudi Arabia believes it would be fine to curb production by 1 million bpd compared to the October level. Even a proposal to cut oil output by 1.4 million barrels per day has been announced… If the decision to reduce output is made, how will quotas be allocated given that it was just Russia and Saudi Arabia that have been ramping up their production?
- If the decision on such volumes is made, the algorithm of allocating the quotas will be set at the ministerial meeting (in December – TASS). It is too early to speak about it now.
- You have met with representatives of Russian oil companies before going to Abu-Dhabi. What do they think about further participation in the OPEC-led supply cut deal?
- Yes, we’ve had a meeting with the companies. Everyone said then that the agreement had proved efficient for the oil industry, the economy and the budget. They also confirmed that cooperation in this format is viable in the future.
- Did anyone propose withdrawing from the deal?
- No, there were no such statements. Our colleagues believe that the mechanism has demonstrated its efficiency, which is why it should be employed in the future. They also agreed that it is premature to make any decision on the parameters of the deal for 2019. On the other hand, the companies said they are ready to change their output if needed.
- In that case, are Russian companies ready to more flexibly manage their production to cut or boost it faster than in 2017?
- Such decisions are up to the companies. They are in different situations and have different possibilities of sharply or smoothly curbing their crude output. So it depends.
- Which is the current oil production in Russia?
- It was somewhat lower in November than in October. We’ve already contributed to the stabilization of the situation in the market. In the first 27 days of November, production was 40,000 bpd lower compared to the October level.
- Can it rise by the end of the year?
- There should be no sharp fluctuations. The average October level will be maintained by the end of the year.
- Saudi Arabian Energy Minister Khalid al-Falih said that Riyadh ramped up oil exports since June, cementing new supply destinations. What about Russia?
- We raised our production, so exports grew too by roughly 4.7 percent by now.
- What were the export destinations?
- On average, 65 percent is supplied in the Western direction with the remaining 35 percent flowing eastwards. It is impossible to track what happens with this crude afterwards. There are numerous contracts, and traders.
We are different from Saudi Arabia. There is one company, Saudi Aramco, which collects the orders. The volumes that we’ve added were likely to go westwards since our eastern direction is fully loaded.
- Let’s talk about the future of OPEC+ a bit more. Saudi Arabia’s Energy Minister said in an interview with TASS that the new organization will have its own secretariat, and that Russia should take the leadership in creating it. Are there any steps in this direction already?
- The issue is not being debated at the moment, and no decisions on setting up the secretariat have been made yet. I think that the existing system will be maintained.
The Secretariat of the Organization of the Petroleum Exporting Countries (OPEC) is likely to continue to handle the deal. The format of convening meetings of technical and ministerial committees will also remain. It is likely that some document will simply be signed to continue cooperation from 2019 for an indefinite period of time.
- So basically nothing will change in 2019?
- We did consider the creation of a new organization, but the deal works under the current conditions. Hence, there is no need to further expand the bureaucracy. Although there are options here.
- Can the working mechanism of the OPEC+ monitoring committee change?
- It will depend on our December agreements.
- Russia is meanwhile discussing joining OPEC as an observer. Is there any progress?
- This idea has been voiced, it does not cause rejection, but requires a careful and balanced approach. In this regard, there cannot be hasty decisions.
- Participants of the agreement are even said to be given verbal recommendations to speak about price expectations as little as possible...
- We’ve never discussed the issue.
- If the decision is made to cut, then exceptions for some countries will definitely be discussed, like it was with Libya, Nigeria and Iran in 2017. What do you think about it? Is it possible to keep some preferential terms for these countries given their situation?
- This issue needs to be debated, it requires consensus.
I would proceed from the assumption that all countries should participate in the implementation of common decisions under the deal. Of course, following the development of our joint position. However, the baseline for the deal to cut output should not be the October 2016 level but other, more up-to-date periods.