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Russian energy minister warns oil price over $50-60/bbl may result in market oversupply

March 01, 2016, 19:18 UTC+3

The decision to stabilize oil production has been supported by fifteen nations producing 73% of oil across the globe

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© AP Photo/Jae C. Hong

MOSCOW, March 1. /TASS/. Stabilization of oil production does not have a task to lift prices above $50-60 a barrel because this will again result in oversupply, Russia’s Energy Minister Alexander Novak said on Tuesday.

"We hoped the market will start balancing itself. Supply volumes in 2015 were even higher than in 2014 despite the price drop. If the offer is kept at January’s level, it means the offer will not grow, while the demand will grow in any case. The market will get rid of oversupply within the shorter timeframe owing to that," the minister said.

Brent oil prices plummeted 49.6% at 2015 year-end and lost 15% more since the beginning of 2016. amounting at present to approximately $33 per barrel. The average Urals oil price at the end of January - February 2016 amounted to $29.69 per barrel.

Fifteen countries already support oil production stabilization

The minister said the decision to stabilize oil production was publicly supported by fifteen nations producing 73% of oil across the globe. It will be efficient even without Iran, although special conditions can be provided to it, the minister added.

"Over 15 countries already publicly confirmed and expressed readiness for the time being. Assuming publicly voiced positions, we may say the exporting nations - 73% of physical oil production - support the freeze and this is the critical mass of countries that may agree," Novak said.

"The decision will be efficient even without Iran," the minister said. "Iran has a special situation at present because it is at the lowest levels of its production. In my opinion, it may be approached individually, with a separate decision," the minister added.

According to the minister, the final decision on oil production stabilization will be made in March and formats still have to be discussed.

"Companies confirm they support the initiative because it means predictability for the market participants. We agree to monitor the situation. The initiative is still discussed. Many countries voiced their support. We will continue talks with other OPEC and non-OPEC countries to meet in March and consider an opportunity of making the final decision," Novak said.

Oil refining at about 280 mln tonnes in 2016

The officail also noted plans to reduce oil refining in Russia to about 280 mln tonnes in 2016.

In 2015, the crude distillation of oil, according to the Federal State Statistics Service, amounted to 287 mln tonnes.

"This year we expect the volume of processing in the region of 280 mln tonnes. Our task is to fully satisfy the demand for diesel fuel and gasoline," he noted.

Plans on field development in 2016

The heads of Russian oil companies have also confirmed plans for field development in the current year.

"The companies have confirmed their plans for 2016 for production drilling and field development. That concerns the licenses, which were issued earlier. It is really important that our companies are competitive in a difficult situation," Novak said.

Earlier Natural Resources Minister Sergey Donskoy said that public investments in geological exploration (GE) would be reduced by 10-15% in 2016. According to him, the record volume of investment in exploration was in 2014.

In 2015, Russian investments in GE totaled 28.4 billion rubles ($386 mln), which is 20% less than in 2014.

Oil companies ask Putin to keep current taxation system unchanged

Accoring to Novak, Russian oil companies have asked President Vladimir Putin to keep industry tax system as it is now.

"Of course, the companies said it to the president - that in the current market situation, prices volatility, amid unpredictability the most important thing is to preserve the tax system, that was formed, in a mid-term perspective," the minister told reporters following the meeting with the head of state.

The minister noted that the companies’ plans can be achieved only the taxation system stays free of innovations linked with an increase in the tax burden.

The minister noted that the final decision on the matter "will depend on the situation, and it will be discussed by the government in the first place, and then brought to the president level."

He added that no decision was made at the meeting with the president on Tuesday but the President "heard the companies’ [request]."

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