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Ananlyst says OPEC’s oil output freeze deal poses no threat to Russian production

Everything will depend on the terms of the oil production freeze deal, the expert has noted

YUZHNO-SAKHALINSK, September 29. /TASS/. OPEC’s oil production limiting deal is no threat to Russia which has been demonstrating sustainable upwards tendencies in oil production in the recent years, Maria Belova, a senior analyst at Vygon Consulting, told TASS on Thursday.

OPEC member nations, which gathered for an informal meeting in the framework of the 15th international energy forum in Algiers, reached an agreement on Wednesday to freeze daily crude oil output at 32.5-33 million barrels.

"I see no risks to Russia’s oil production. So far, it is not clear which month will be the basis for agreements," she said.

She said everything will depend on the terms of the oil production freeze deal. Thus, if oil exporting countries agree to freeze oil output at a level of one of the recent months when Russia demonstrated record-breaking production dynamics, Russia will be able to increase yearly output:

"If [oil output] is fixed at a high month, the results of the year will show growth all the same." 

Russia’s oil production has been growing for several years in the row. Thus, Russia’s daily output in 2015 was 10.726 barrels of oil and gas condensate. The year’s output exceeded 534 million tonnes, or by 1.4% up on the previous year. Russian Deputy Minister of Energy Kirill Molodtsov said oil production in Russia in 2016 may reach 540-545 million tonnes, or even more.

Earlier, he said Russia has set a new record of daily oil output when it exceeded 11 million barrels on September 8.

The oil production freeze deal was reached despite the skepticism of OPEC nations ahead of the Algiers forum. Ahead of the forum, its participants expected no final agreements. However Venezuela’s Minister of Petroleum and Mining Eulogio Del Pino did not rule out a possible consensus. 

Oil price likely to rebound

The current oil price advance prompted by OPEC’s oil production optimization decision is unlikely to be followed by further growth. A rebound is highly probable as the market will be waiting for actual steps from oil exporting countries, the expert believes.

According to earlier reports, Brent oil with delivery in November 2016 rose by 4.6%, to 48.35 U.S. dollars per barrel, at London’s ICE following reports on OPEC’s oil production restriction deal.

"Oil has grown in price. But it will be followed by a rebound. Traders have reacted to the news, which is natural. Their subsequent move will be to recover the surge and wait for actual steps," Belova said, adding that there is another scenario when oil exporting countries will maintain price growth by means of loud statements, such as Russia’s plans to join the production optimization process.

Russia, which is not an OPEC member, was not invited to the meeting. Russian Minister of Energy Alexander Novak said that Russia will take part in an OPEC meeting with oil producing countries should it be organized.

The issue of potential freezing of global crude production was revived after Russian President Vladimir Putin said on September 2 that Russia supports the agreement with OPEC to curb oil production growth. He expressed hope that other oil producers would support the initiative.

On the sidelines of the Group of Twenty summit in early September, Moscow and Riyadh, which control more than 21% of the global oil consumption, inked a joint statement geared to stabilize the oil market. As Novak said back then, the two countries were discussing possible oil production freeze for three or six months.

According to Russian Energy Minister Alexander Novak, an oil production freeze deal might speed up balancing of market demand and supply by three to six months but such a deal requires coordinated positions of OPEC member nations.

The previous meeting on crude production freeze took place in Qatar’s Doha on April 17. Representatives of 18 oil-producing countries (Iran refused to participate) failed to reach an agreement on oil production cap and after 12 hours of talks said they needed more time for consideration.