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Russian Energy Minister doubts impact of verbal interventions on oil market

June 03, 16:54 UTC+3 MOSCOW
The supply of oil is not growing now because of many different factors, including, reduction of investments in the industry, which is observed in the last two years
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© AP Photo/Hasan Jamali, File

MOSCOW, June 3. /TASS/. Russia’s Energy Minister Alexander Novak doubts that verbal interventions play a significant role on the oil market. Talking to reporters on Friday he said:

"I think it is unlikely that verbal interventions play a significant role. Now fundamental factors have already come into force. We see that the supply (of oil - TASS) is not growing now, for the first time, in the first quarter, and sometimes also in the second quarter, and there are many different factors, including, reduction of investments in the industry, which is observed in the last two years. It is certainly not a typical situation that we see now - fires in Canada, diversions at the oil facilities in Nigeria, Iraq. This also affects…" the minister said.

"Of course, this is a short-term factor, however, today we see that there is no imbalance and so the price has been adjusted on the basis of fundamental facts," Novak said.

Oil production

According to Vygon Consulting, by the end of 2015, the surplus of oil production more than doubled year-on-year reaching 2 mln barrels a day. The oversupply was caused by the increase in production in the US and also by the fact that OPEC continued to build up its own production. In a year time the production of liquid hydrocarbons by OPEC states grew by almost 1 million barrels a day.

On December 14, 2011, OPEC decided to increase daily oil production from 29.8 mln to 30 mln barrels from January 1, 2012. At the same time quotas for countries of the organization were not set. As a result the oil price reduced by 3.3% from $109.25 to $105.72. But in early 2012 the prices returned to their previous level. In March-April 2012, Brent crude costs more than $120 per barrel.

In autumn 2014, the refusal of OPEC to cut oil production by cutting quotas became one of the factors that made Brent crude price drop below $50 per barrel in early January 2015.

After meeting on December 4, 2015 OPEC did not unveil the target level of production which actually allowed the members of OPEC to produce as much oil as they wanted. This led to a new drop in oil price. In January 2016, Brent crude price fell below $30 per barrel. On January 21, the price fell to low $27.5 per barrel, which is a record low price since early 2000s.

In February oil price stabilized at $33 per barrel and in spring a gradual growth began. At present, the volume of oil production by OPEC countries is estimated at 31-32 mln barrels a day.

After the meeting of OPEC on December 8, 2015, the price of Brent crude fell below the critical mark of $40 per barrel, first time since 2009. The slight growth was attributed to lower oil production volumes, talks between OPEC and other oil producing countries on stabilization of price.

On March 7, the oil price exceeded $40 per barrel and on May 26 - $50 per barrel.

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