Russia Backs Gradual Exit From Crude Cuts With OPEC

OPEC and Russia will exit from oil production cuts very smoothly, possibly extending the curbs in some form so as not to create any new surplus in the market, the Russian energy minister told Reuters.

Alexander Novak also said in comments cleared for publication on Friday that he saw no direct connection between the oil cuts and Saudi Arabia’s plan to list Aramco, the world’s top oil producer.

“Everyone in the market is interested in achieving balance,” Novak said in response to a question on whether Saudi Arabia could abruptly exit the cuts as soon as it lists Aramco sometime in 2018. The share sale promises to be the world’s biggest.

OPEC and other large oil producers led by Russia agreed last month to extend until the end of next year their deal to cut a combined 1.8 million barrels per day of output.

The move is aimed at clearing a global stocks overhang and propping up oil prices.

Russia and Saudi Arabia have significantly improved bilateral ties this year, resulting in a visit to Moscow by Saudi King Salman accompanied by a large political and business delegation. Oil is a key source of budget revenue for both countries.

On Thursday, King Salman and Russian President Vladimir Putin held a telephone conversation during which they agreed to continue close cooperation to ensure stability on global hydrocarbon markets.

OPEC and Russia together produce more than 40% of the world’s oil. Moscow’s cooperation on output cuts with OPEC, arranged with Putin’s help, has been crucial in roughly halving an excess of global oil stocks since January.

With oil prices rising above $60, Russia has expressed concern that an extension for the whole of 2018 could prompt a spike in crude production in the United States, which is not participating in the deal.

Russia has been pushing to ensure that ending the cuts will not cause a supply deficit or a sharp rise in prices that spurs US shale producers to increase output.

Novak said it would take time for the deal to be brought to an end.

“Detailed parameters will be discussed by the time we approach balance. There could be different timeframes, depending on forecasts of supply and increasing demand in global markets,” he said.

“We have a common understanding on this issue but I do not want to discuss hypothetical scenarios now,” Novak said.

“There is a consensus among the oil ministers that we should avoid oversupply on the market when exiting the deal.”