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Rosneft CEO explains how OPEC deal affects oil market

Логотип TASS TASS 02.06.2017 TASS

ST. PETERSBURG, June 2. /TASS/. The OPEC agreement gives the oil market a chance to "breathe", but it is unlikely to lead to long-term stabilization, Rosneft CEO Igor Sechin said at the St. Petersburg International Economic Forum 2017 (SPIEF-2017).

"The so-called "agreement between OPEC and non-OPEC countries", where Saudi Arabia and Russia make the main contribution, gives the market a chance to breathe. However, it is difficult to consider it systemic measures, the effect of which will lead to long-term stabilization. A number of large producers that do not participate in these agreements, actively use the situation to strengthen their own market position, which creates conditions for a new instability," he said.

According to him, the OPEC countries that are outside of the estimated quotas, report an active increase in production. In particular, Nigeria - 100,000 barrels per day, Libya - 210,000 barrels per day. "According to some experts, in May total OPEC production exceeded the volume of 450,000 barrels per day defined by the November agreement," Sechin added.

Decline of oil production under the OPEC agreement by mid-2018 may be offset by growth of shale oil production in the Unoted States, Sechin said.

"Growth prospects of about 1.5 mln barrels per day in 2018 are more optimistic. Thus, reduction of oil production under the OPEC agreement of by the middle of 2018 could be largely offset by an increase of shale oil production in the United States," Sechin said.

At the same time, according to him, "extremely favorable conditions have been created for shale mining in the United States."

However, there is a number of factors that can slow recovery of shale mining, including infrastructure restrictions, volume of the required investments and the cost of contractors’ services, Sechin added.

According to Sechin, all oil market participants are preparing to increase production. "Unfortunately, the uncertainty in the market also leads to aggravation of the struggle for consumption markets, and I have to say that today all the market participants are preparing for growth of production and struggle for the sales markets," he said.

"We must agree that if the industry needs steady and long-term stability, all large producers should participate in the regulation of production, so in the current state, we cannot talk about stabilization or a steady break in negative market trends," Sechin added.

Sechin added that the achieved price of oil at $50 per barrel is useful for the Russian budget, but this state of the market is not sustainable. "The OPEC agreement has improved the market situation, and the resulting price level of $50 per barrel and above is useful for the Russian budget and Russian companies, but this market condition is not sustainable," he said.

Speaking of the domestic market, Sechin noted that introducing an excess-profits tax in the Russian oil industry should help attracting investments. Rosneft welcomes this initiative.

"The new tax initiatives prepared by the Russian government on introducing an excess-profits tax are being released. That should help attracting investments in the industry and become an important step in creating a competitive fiscal system, taking into account the recent initiatives of Saudi Arabia and the United States. We can only welcome such initiatives," he said.

On May 25, OPEC has decided to extend the agreement to reduce oil production until April 2018. The quota for reduction of production by the OPEC countries and 11 independent oil producers remained the same - 1.8 mln barrels per day (Russia accounts for 300,000 barrels).

At the end of last year, OPEC and 11 countries outside the cartel agreed to withdraw 1.8 mln barrels per day from the oil market in the first half of 2017. The goal of the alliance is to reduce global oil reserves to an average level of five years - to about 3 bln barrels.

ITAR-TASS

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