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Putin says Russia, Saudis agree to extend OPEC+ cuts deal

Russian president Vladimir Putin said Saturday that Russia and Saudi Arabia have agreed to support an extension of the OPEC+ deal, which may be in force for an additional six to nine months. Iraq’s oil minister said he was “happy” about their support to extend the crude production cuts.

Analysts had expected Russia to agree to an extension, but Russian officials had up to now been non-committal, citing market volatility and the need to analyze as much data as possible before making a decision.

“I want to inform you that we agreed, we will extend our agreement. We support an extension, that is Russia and Saudi Arabia,” Putin said during a press conference on the sidelines of the G20 in Osaka, Japan, televised live on the Russia 24 TV channel.

He said that output cut volumes have been agreed previously, but the duration of the extension is still under discussion.

“We are still thinking about for how long, six nine months, it may be for nine months,” he added.

Russian media reported that Russia favors a nine-month extension, citing energy minister Alexander Novak.

“We think that it would be more beneficial to pass the winter period also under the agreement… because in the winter period it would be difficult to exit the deal, when demand is falling and in the summer period demand rises. Therefore, it is most likely, most beneficial, to extend the deal for nine months,” Novak said, according to the Prime news agency.

He added that most other countries also support an extension.

“I cannot speak for Iran, but it seems to me that all countries have now expressed their view on the issue and there is a common expectation to extend cooperation and extend for at least the second half of the year, maybe for nine months,” Novak said, according to the report.

In a statement released earlier Saturday Novak said that the results of talks between Putin and Crown Prince Mohammed bin Salman “reaffirm our countries’ focus on ensuring stability on the global oil market, as well as a high degree of mutual understanding.”

“With the current level of uncertainty on the global market, coordinated action by oil producers to guarantee consistent and sufficient supplies of oil to the market is a key factor in ensuring market stability,” Novak said.

Paul Sheldon, chief geopolitical advisor at S&P Global Platts Analytics, said Friday that “Russia’s short-term incentive to continue cooperation is clear, judging from recent production cuts, as the oil price impact from OPEC+ participation proportionately far outweighed Russia’s own voluntary supply reduction.”

“Russia has clear sensitivity to Brent falling below $60/b, and the finance and energy ministers both recently warned that oil prices could fall below $40/b without an extension,” he added.

Kirill Dmitriev, CEO of the Russian Direct Investment Fund, said that the agreement has already increased Russian budget revenues by more than Rb7 trillion, around $110 billion.

“The extension of the agreement to reduce oil production will support the stability of oil markets and will contribute to the growth of the world economies,” he said.

In London, Iraq’s minister for oil Thamir al Ghadhban told Platts that Iraq was “happy” about the Saudi-Russia agreement. He said Iraq will “try our best” to achieve a higher level of compliance over the next six to nine months. Iraq has been one of the least-compliant OPEC members and Platts estimated that the country pumped well-over its quota in May, reaching a record-high level of 4.82 million b/d.

The current OPEC+ crude production agreement includes a collective cut of 1.2 million b/d in the first half of 2019. Under that deal Russia committed to cut around 230,000 b/d from its October 2018 output of 11.421 million b/d.

May crude output data showed Russia over-complied, producing 11.1 million b/d. This was largely as a result of disruptions to oil deliveries via the Druzhba pipeline, following contamination with excess organic chlorides.

Deliveries via the route have resumed, but Russia’s state-owned pipeline operator Transneft’s clean-up operation is continuing. Data for June has yet to be released. Platts Analytics expects supply disruptions to end this month, “with Russian production rebounding to the OPEC+ quota for the month of July,” Sheldon said.

Other analysts see the ongoing Druzhba clean-up operation as continuing to pose risks for Russian crude output however. Over the last week both Poland and the Czech Republic have temporarily halted deliveries via the network after spot testing showed excess levels of organic chlorides.

George Voloshin, head of the Paris branch of Aperio Intelligence, said the contamination could continue to curb production over the summer.

“I think we’ll certainly see reductions over the summer, my feeling is there will be no resolution before September. It depends a lot on what Transneft can do. The issue is how quickly they can solve the problem. At this point we don’t even know how much oil has been affected,” he said.
Source: Platts

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