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Russian sovereign fund sees OPEC+ alliance withstanding changes to output policy

Participants in the OPEC/non-OPEC crude production cut deal may change their approach to output levels this year, but the cooperation can withstand such changes, the head of the Russian Direct Investment Fund, Kirill Dmitriev, said Monday.

“For example, OPEC+ countries took a decision to increase output in June 2018 and it is very likely that given solid market fundamentals and reduction of global inventories, a new decision to stop the cuts and start increasing output can be taken this year. This will not mean abandoning the deal, just the opposite, it stresses high-level coordination between the deal participants,” Dmitriev said during a panel session at the Russia-Arab World conference Monday.

The comments from the head of Russia’s sovereign wealth fund come at a time when some market watchers see differences between Russia and Saudi Arabia’s views on what to do concerning crude output in the second half of 2019.

Russian Energy Minister Alexander Novak maintains that there is still too much uncertainty on the market to take a decision, while his Saudi counterpart Khalid al-Falih has said that his preference is to continue the cuts beyond their June expiry.

S&P Global Platts Analytics sees Russia’s hesitancy as down to lower fiscal requirements and producers’ concerns over ceding market share to US Shale.

“Recent reports indicate Russia will agree to at least a three-month extension at the June 25-26 meeting, which would be an unsurprising outcome if oil prices remain in the neighborhood of $70/b Brent (which we expect),” Paul Sheldon at Platts Analytics said.

“Once the agreement ends, Russian production will quickly rebound, as it did between May and December 2018. But Russia will likely continue to cooperate with Saudi Arabia to rebalance near-term markets when the need arises,? he added.

BILATERAL COOPERATION

RDIF has played an active role in developing bilateral cooperation on the sidelines of Russia’s involvement in the OPEC+ agreement, which Dmitriev expects to continue to grow.

“In the last five-to-six years there has been a major turnaround from the perspective of investment and partnership with countries in the Middle East,? he said.

This new investment has come at a difficult time for the Russian economy, and is likely to continue to grow, Dmitriev told reporters.

Russian companies, including energy companies, are also seeing opportunities to enter Middle eastern markets.

“Of course Novomet will work with Aramco, so the story that Russian companies will open up the Middle East market is really working,” Dmitriev said.

Oil services companies have been a particular source of interest, particularly for Saudi-Russian energy cooperation. In February RDIF and state energy group Saudi Aramco said they had agreed the main terms of investment in Novomet, which develops and produces submersible equipment for the oil industry.

Dmitriev said previously that the cooperation includes increasing Novomet’s presence in Saudi Arabia and other Middle Eastern markets. RDIF and Aramco have also discussed investment in Russia?s Eurasia Drilling Company (EDC).

Platts Analytics sees significant opportunities in Russian services in the future.

“The Russian services sector will likely provide significant opportunity as activity picks up in new areas including offshore, Arctic and shale, in addition to frontier regions. It has been a difficult sector for foreign companies to penetrate, as demonstrated by Schlumberger?s prolonged efforts to acquire a stake in EDC,” Sheldon said.
Source: Platts

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