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Russia's deputy PM says expects drop in investment in production to raise oil prices

December 28, 2015, 10:13 UTC+3 MOSCOW
A drop in prices of Brent crude oil from the highs in June 2014 is now around 70%
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© Viktor Drachev/TASS

MOSCOW, December 28. /TASS/. Deputy Prime Minister Arkady Dvorkovich expects that the decline in investment in production will raise oil prices, he said in an interview to Rossiya 24 TV channel.

"I believe this [decline in oil prices - TASS] cannot last for too long, because for a number of months, for some time, any company, any producing country is able to sustain such low prices. But then investment will inevitably go down, which means that production will fall and prices will rise," Dvorkovich said.

A drop in prices of Brent crude oil from the highs in June 2014 is now around 70%. In December 2015, Brent became cheaper to its lowest level since 2004, falling to $36 per barrel. For comparison, in December 2008, the Brent crude oil price fell to $36.2 per barrel, having fallen in price by 75% in 5 months.

Oil prices have accelerated the fall after OPEC meeting on December 4. At the end of the 168th meeting in Vienna, the oil ministers of the OPEC countries did not make any clear decision on production quotas because of the position of OPEC non-members.

Currently, the volume of oil production by OPEC members is estimated at 31-32 million barrels per day. The previous quota stood at 30 million barrels per day.

According to Iraqi Oil Minister Adel Abdel Mahdi, a decision on quotas was not adopted because of the position of countries outside the cartel.

Oil price for short time period could fall to $20-25 per barrel 

 Accrding to the official, the oil price could fall to $20-25 per barrel, but it cannot last too long.

"Of course it can reach ($20-25 dollars per barrel - TASS). It does not mean that it will happen. But it cannot last for too long," Dvorkovich said in an interview to Rossiya 24 TV channel.

"For a while, every producer country would be able to sustain such low prices, but then investment would inevitably go down, and hence there will a fall in production and prices will rise," Deputy Prime Minister explained his position.

According to him, no one can make predictions for movement of oil prices. "Prices may remain on both the current level and decline for few more dollars," said Dvorkovich. "But reverse movement can also happen next year," he added.

"We always base our policies not on any particular forecast of oil price, but on how we will act in any situation, whatever it [the price - TASS] is," Dvorkovich noted.

Sharp decline in oil production in Russia in 2016 not expected

Dvorkovich said he does not expect strong fluctuations in volume of oil production in Russia in 2016.

"We should not expect any sudden fluctuations in production. There can always be small changes. It may be a slight decline, a slight increase, but so far we do not expect serious effects," Dvorkovich said in the interview.

Government discussing tax on financial result for oil producers

According to the official, the Russian government is discussing introduction of a tax on financial result for oil producers.

"We’re discussing additional expansionary measures, including introduction of a tax on the so-called financial result, which will enable companies willing to produce oil at brown fields to do this, first of all using modern recovery method, and to receive business effect from this, while we’ll see stable production respectively," he said.

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