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Gazprom Neft calls for fine-tuning of OPEC+ deal

Gazprom Neft sees a need to fine-tune the parameters of the OPEC+ production cut agreement, taking into account participants’ market share, drilling activity, and changes to production capacity, first deputy CEO Vadim Yakovlev said.

Considering that the deal has now moved beyond just a mechanism for short-term market stabilization, he called for companies’ strategic plans to be taken into account and the arrangement to be made more flexible.

“Now the overall situation on the market is stable and we do not think that any urgent action is needed, this allows us to think about how this mechanism can be developed further. And we believe that there are opportunities to fine-tune it, in order to take into account how we see our target market share, and considering the current contribution of deal participants to overall supplies [of oil],” Yakovlev said during a press briefing.

“We should also get our share of additional demand that comes to market. For this, the mechanism should be more flexible,” he added.

Yakovlev said this would allow for participants to both achieve short-term market balance and create fairer conditions for all market participants.

OUTPUT TO RISE

Yakovlev also discussed Gazprom Neft’s production plans up to the end of 2019 and in 2020, commenting that the company could produce up to 66 million mt — or around 1.32 million b/d — of oil in 2020, depending on what constraints are in place under the OPEC+ production cut agreement, first deputy CEO Vadim Yakovlev said Thursday.

The current deal is valid until the end of March 2020.

Yakovlev added that 2019 oil output will not be less than 63 million mt, or around 1.26 million b/d.

Gazprom Neft also sees potential to boost hydrocarbons production next year, to 100 million mtoe, or around 2 million b/d of oil equivalent. It expects hydrocarbons output in 2019 of 96 million mtoe, or around 1.93 mil boe/d.

2020 DEMAND STABLE

Gazprom Neft does not expect a fall in demand next year, Yakovlev added.

He pointed to a general drop in global economic activity as potentially hitting demand, but said this may be compensated for by other factors, including changes to environmental fuel requirements in the shipping industry.

“We periodically see a decrease in supply due to geopolitical factors. But taking into account the fact that OPEC + has established itself as a good balancing mechanism, we believe that markets will be balanced next year,” Yakovlev said.

NON-DOLLAR TRADING

Yakovlev added that around 95% of Gazprom Neft’s crude oil trading is currently conducted in dollars, with the remaining 5% in alternative currencies.

“At the moment 95% in dollars, 5% in other currencies. In our contracts there is the option to trade in other currencies, it is available to us, but the volume depends on current market conditions, at the moment this proportion is optimal, but this may change,” he said.

He added that in 2018 the proportion was at around the same level.

When Western sanctions were introduced against Russia in 2014, Russian companies, including Gazprom Neft, increased test trading in currencies other than the dollar. Interest in such trades has risen since then as a result of the threat of further US sanctions blocking Russian companies’ access to the US dollar, as well as trade tensions with the US boosting interest among some key buyers of Russian crude, including China.
Source: Platts

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