The OPEC/non-OPEC production cut agreement has significantly benefited Russia’s budget and companies, as it put a floor under oil prices, Russian Energy Minister Alexander Novak said on Thursday.
Oil prices could have dropped to US$25 a barrel if OPEC and its Russia-led non-OPEC allies hadn’t started to curtail production in 2017, Novak said at the Russian Investment Forum in Sochi today.
Without the OPEC deal, oversupply would have been significant, inventories today would have been much higher than the five-year average, and the pressure on prices would have been significant, the Russian minister said.
Novak’s remarks come days after reports emerged that Igor Sechin, the chief executive of Russia’s largest oil producer Rosneft, had written a letter to Vladimir Putin, arguing that Russia should quit the OPEC+ deal, which, according to Sechin, threatens Russia’s market share while it benefits the United States.
Novak, while not commenting on those reports, said that the deal has significantly benefited Russia’s budget revenues and companies over the past two years.
In the past two years, the OPEC/non-OPEC deal has poured in additional US$89.6 billion (6 trillion Russian rubles) into Russia’s budget, while companies have received US$30 billion – US$37 billion (2 trillion-2.5 trillion rubles), Novak said at the Sochi forum, noting that those estimates are very conservative and based on an oil price premium of US$10 a barrel from the production cut deal.
Referring to Russia’s share of the cuts, Novak said that as of February 14, the country had reduced its production by 80,000 bpd-90,000 bpd from October levels.
Russia is taking the lion’s share of the non-OPEC cuts and pledged to reduce production by 230,000 bpd from October’s 11.421 million bpd level, to 11.191 million bpd.
Russia has repeatedly said that due to weather and geological conditions in the cold Russian winter, it cannot cut its oil production too quickly.
Novak said today that the companies would be trying to accelerate the cuts to reach the target by April.