Russia plans to propose to the OPEC/NOPEC allies next week that they reverse the group’s production to the October 2016 levels—the baseline for the cuts of most pact participants when they had pumped as much oil as they could to blunt the cuts’ impact later.
Moscow will propose that OPEC and its Russia-led non-OPEC partners in the deal increase their combined production by 1.8 million bpd, starting as early as in July, Bloomberg reports, citing a person familiar with the Russian thinking.
Yet, even with the 1.8 million-bpd production rollback, the total OPEC/non-OPEC level would still be around 1 million bpd below the October 2016 levels, because some producers, notably Saudi Arabia, have cut more than intended, while others, most notably Venezuela, have seen involuntary production declines and are unable to lift production, the person told Bloomberg.
Russia thinks that its proposed production level would result in stable oil prices during the peak summer demand season in the northern hemisphere. Moscow will also support extending the OPEC/non-OPEC alliance into next year—with or without new production levels, depending on the oil market conditions, according to Bloomberg’s source.
Russia, alongside Saudi Arabia, has the highest spare capacity to boost production. Moscow’s pledge in the deal is to shave off 300,000 bpd from the October 2016 level, which was the country’s highest monthly production in almost 30 years—11.247 million bpd.
Russia and Saudi Arabia, the leaders and largest producers of the non-OPEC and OPEC producers in the deal, have started to hint that they could reverse some of the cuts ‘to ease consumer and market anxiety’, and reports have it that the production boost could be as much as 1 million bpd.
Most of the other OPEC nations are reportedly upset with Saudi Arabia for not consulting them prior to such comments and hints, and most of the OPEC members—excluding the Saudis and some of its Gulf allies (Kuwait, the UAE)—will not be able to lift production significantly in order to offset lower oil prices.
Russia’s proposal will be just one of many suggestions up for discussion at the meeting in Vienna next week, which is expected to be one of the most heated and contentious summits in recent years.
According to Citigroup, some increase of the pact’s oil production “looks inevitable”, because it is supported by the two biggest producers. The bank thinks that a production boost of around 500,000 bpd is the most likely outcome.