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Abu Dhabi, UAEWednesday 19 September 2018

Russia backs gradual, managed exit from oil cuts with Opec

Opec and other large oil producers led by Russia agreed last month to extend until the end of next year

The Russian energy minister Alexander Novak says Opec and Russia will exit from oil production cuts very smoothly, possibly extending the curbs in some form. Ahmad Al-Rubaye / AFP
The Russian energy minister Alexander Novak says Opec and Russia will exit from oil production cuts very smoothly, possibly extending the curbs in some form. Ahmad Al-Rubaye / AFP

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, according to the Russian energy minister told Reuters.

Alexander Novak also said 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.

The 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.

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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. Oil is a key source of budget revenue for both countries.

Opec and Russia together produce more than 40 per cent 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 a barrel, Russia has expressed concern that an extension for the whole of 2018 could prompt a spike in crude production in the US, 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 time frames, depending on forecasts of supply and increasing demand in global markets," he said.

"We have a common understanding on this issue but I don't 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."

Novak said there was an option to extend the deal beyond 2018, while he sees markets balancing in the third or fourth quarters of next year.

"Our task, above all, is [to achieve a] sustainable demand and supply balance. We aim to reach this result, this could be achieved, if things are going well ... during 2018," he said.

Saudi Energy Minister Khalid al-Falih said on Wednesday it was premature to discuss any changes to the Opec-led supply pact as market rebalancing was unlikely until the second half of 2018.

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