The ability to reduce oil production by 5%, but it will be difficult to negotiate

The ability to reduce oil production by 5%, but it will be difficult to negotiate


MOSCOW, January 28. Russia can find a technical possibility to reduce oil production along with OPEC, including at the expense of natural production decline and export, respectively, but agree on consolidated actions and mechanisms for monitoring agreements will be difficult, according to analysts surveyed.

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Novak: the theme of the consultations with OPEC may be a reduction in oil production up to 5% each of the countries

On Thursday energy Minister Alexander Novak said that the subject is possible in February of consultations of representatives of the OPEC and outside it is the Union of producers of oil would be to reduce production to 5% of each of the countries. Statements Novak “pushed” oil above $35 per barrel. The head of “Transneft” Nikolay Tokarev noted that the initiative of such consultations were made by Saudi Arabia.

Talk about the decline of world oil production to normalize prices going for a long time. At the OPEC summit, which took place in December last year, the cartel failed to agree on the amount of production quota and it was decided to raise it to the level of actual production. This has led to a sharp decline in prices for “black gold”. The Minister of oil of Iraq has noticed that the decision was taken because of the reluctance of countries outside the cartel, including Russia, to reduce their prey.

“We are technically very difficult to reduce production in winter is impossible, as we extract oil, but the downhole fluid. It is 80-90% water. If the well is stopped, it may explode. Stop only in the warm season, for example, do when repairing well”, – the analyst of Sberbank CIB Valery Nesterov.

Ekaterina Rodina, an analyst “VTB Capital”, agreed with his colleague: “Technically to cut production in Russia is possible, this is not a difficulties from the point of view of mining technology. To do this in sufficient volume to reduce investments, but, in my opinion, it will require a lot of negotiation process not only within Russia but also OPEC.”

OPEC has no discipline

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Novak: the Russian Federation has confirmed its participation in the OPEC meeting to discuss a possible reduction of extraction

The interviewed analysts agreed that the decision to reduce production is unlikely because of the lack of unity within the cartel and the lack the members of the cartel discipline, and whether there is a consensus about the need to reduce production at Russian companies.

“I think it is unlikely that they would take such a decision. To this (production cut – approx. ed.) have already discussed and no action was taken. Moreover, Saudi Arabia is clearly not going to cut production, and intends to fight for markets,” said analyst of oil and gas branch of Raiffeisenbank Andrei Polishchuk.

According to Catherine’s Birthplace, within the cartel there is no unity. “Even when they took the decision to reduce production, no one in the end, the decision was not fulfilled. While it is difficult to imagine the adoption of some concrete decisions and even harder to imagine how that will be monitored”.

According to Valery Nesterov, there is no unity among Russian companies. LUKOIL supports the reduction, Rosneft against. Moreover, in his view, the government cannot order all to reduce production, because everyone has different conditions, different regions, different cost.

We need to support OPEC morally

Despite the skepticism, experts believe that talking about the decline in production is necessary, as joint declarations, meetings may deter speculators from further play on lower oil prices.

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Sands: to draw conclusions about possible reduction of oil production in Russia is premature

Valery Nesterov advises: “We need to talk to OPEC, to take any steps to support them morally, politically, diplomatically. We ought to give the natural drop in production and decline in exports, as evidenced by “Transneft”, for our policy to maintain prices”.

Experts believe that even if oil-producing countries would cut production, then this will not lead to the desired result. Andrei Polishchuk believes that if Saudi Arabia will reduce production by 5%, this share will get Iran.

From reduced production will only benefit US companies, extracting shale oil. “If we agree and the price goes up, it is unclear how they will behave producers of shale oil in the United States. While I assume that they will massively come back, open those wells that are now plugged, production will increase dramatically and price will fall again. Win no. The same price of $30 can be seen through the year,” said Valery Nesterov.

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Oil prices over 40 years

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