Russia Poised to Discuss Exit From OPEC Supply Cut Deal

Russia may be on its way out of the OPEC output reduction deal, the country’s Energy Minister Alexander Novak announced.

Novak might discuss the country’s potential exit from the pact in Oman next week.

Russia had vowed to cut output by 300,000 barrels per day under the agreement as part of a group of non-OPEC producers who elected to coordinate the bloc’s market stabilization initiative, Oil Price reported.

“We see that the market is becoming balanced. We see that the market surplus is decreasing, but the market is not completely balanced yet and, of course, we need to continue monitoring the situation,” Novak said.  Russian oil majors have been complaining about the deal and how it is creating stumbling blocks on the road towards the industry’s expansion plans.

Brent barrel prices are currently approaching $70 a barrel, suggesting crude markets are rebalancing as we approach June, when the deal is set for “review”–a process with little description in the full text of the OPEC deal’s renewal, which was agreed upon in November. Lukoil chief executive, Vagit Alekperov, also said on Friday that Russia should start exiting the crude cut accord if prices remain at $70 per barrel for more than six months.

“If the price of $70 remains for more than half a year, we should start exiting smoothly,” Alekperov, who is also a major shareholder in the Russian oil company, told reporters.

As far as OPEC members are concerned, the deal could carry on beyond the end of 2018.

Speaking to CNBC in Abu Dhabi this week, UAE Energy Minister Suhail al-Mazrouei said progress was being made, but more needs to be done.

"The market fundamentals in 2017 have been good, but we're looking forward to seeing another healthy year of production in 2018," he said. "The concern is to achieve that balance between supply and demand, and we're not there yet."

But Mazrouei believes this year could see the oil markets finally achieve equilibrium.

"I am expecting that we will still see corrections in 2018 and ... the market fully achieving the balance," he said.

His statement comes amid a variety of scenarios on how the deal might come to an end, featuring civil unrest in Venezuela and the Middle East that may lead to supply disruptions; Russia pulling out of the pact in June; OPEC members and other parties to the deal starting—or continuing—to cheat; and oil prices rising too high.