Energy Ministry: Russian oil producers won't be compensated for extending output cut deal

ST. PETERSBURG, May 16. /TASS/. Russia’s Energy Ministry plans no compensations to Russian companies due to a probable extension of the agreement on oil production cut, Minister Alexander Novak said Tuesday.

"No (compensations) are linked particularly to the deal," he said, adding that the Ministry continues working with companies and the Finance Ministry on other issues, including excess-profits tax and watered fields subsidies.

According to Novak, Moscow isn’t out to significantly impact the oil price. The main goal of the production cut agreement with oil-exporting countries is to bring the market into balance and reduce a global glut of oil reserves, he said.

"We assume that the main thing is not the price, but the (intention) to bring average monthly reserves back to the average five-year level," the minister said.

The minister believes global oil reserves will decline by another 100-120 mln barrels per day by July 1, 2017.

"According to our estimations what remains (of oil in storages - TASS) following the agreement will decline by around 100-120 mln barrels per day by July 1," he said, adding that "May and June (results) will be monitored."

Another 3-5 countries might join the agreement on reducing oil production by OPEC countries and non-cartel exporter countries, he went on.

"I think it will be 3-5 new countries," Novak said. Although the Minister did not name specific countries. However, according to him, they would add a certain volume to the total share of oil production to be reduced, but did not name possible volumes. 

Extending the agreement between OPEC and countries outside of the cartel for 9 months will help reaching a market balance and overcome the winter decline of demand for oil, he went on. 

"We believe that the market may not be balanced before the end of the year, and we also observe an annual seasonal decrease of winter demand, so we need to get through this period," the minister said.

According to Novak, extending the agreement exactly for 9 months will help with a longer-term market forecast and give a greater certainty in terms of market recovery. At the same time, at a meeting of the OPEC countries and countries outside of the cartel in Vienna on May 24-25, Russia is going to propose maintaining the current parameters of the agreement.

In early December 2016, OPEC countries and eleven non-OPEC nations agreed to slash the total oil production by 1.8 mln barrels per day in the first half of this year in order to cut global oil stocks to the latest five-year average.

As of May 1, Russia moved beyond its commitments as it reduced oil production by 300,790 barrels per day versus October 2016, according to the Energy Ministry.