Russia signalled that it would be willing to prolong the production cuts it agreed with Opec beyond the first quarter of next year if needed, while also making clear its commitment to the deal wasn’t open ended.
It was too early to talk about the specific details of extending the oil-output pact at a meeting with fellow producers in Vienna on Friday, said Russian Energy Minister Alexander Novak. The group needs to stick with the accord, which has boosted prices, and make sure there is a smooth transition when it eventually ends, he said.
“Any agreement - especially an agreement aimed at balancing the market, supply and demand has to end somewhere,” Novak said in a Bloomberg television interview after the meeting. “A gradual, slow exit strategy” could begin between the second and fourth quarters of 2018 when “demand can absorb additional supply,” he said.
The Opec accord is due to expire at the end of the first quarter. Russia holds its presidential elections on March 18.
Russia, which relies on energy for more than a third of its budget revenue, saw its economic growth accelerated to the fastest pace in almost five years in the second quarter amid recovery in oil prices and domestic consumption. The nation has benefited from the crude-output pact with Opec and other producers. Finance Minister Anton Siluanov said in an interview earlier this month that the country could benefit from extending the accord.
It may not be possible to discuss such an extension earlier than January, Novak said in a news conference after his meeting with members of the Organization of Petroleum Exporting Countries. But once the deal ends, it should be phased out in a way that ensures all positive results of the pact are retained, he said in the interview.
“Once the market is balanced and once the inventories, which push prices down, are removed and reach roughly an average five-year level,” the group can start talking about a slow exit strategy, he said. “I believe the best period for amending our joint efforts is a time of demand growth.”
Russia’s budget revenue from oil and gas taxes, which earlier this year recovered to 2015 levels, fell again by July on crude price fluctuations and a stronger rouble. While oil prices have rebounded to a six-month high since then, risks remain and crude could fall as low as $40 a barrel next year, according to the nation’s central bank.
Russia’s Energy Ministry sees oil at $50 to $60 a barrel through the end of this year, which would be a good price both for producers and suppliers, Novak said.
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