Return to pre-deal oil output levels possible, says Russia’s Novak

MOSCOW (Reuters) – A return to the oil production levels that were in place prior to the 2016 deal to cut output is one of the options for easing curbs, Russia’s energy minister said.

Sources said this week that Saudi Arabia and Russia were discussing raising OPEC and non-OPEC oil production to ease 17 months of strict supply curbs amid concerns that a price rally has gone too far.

“We have agreed that within a month we will additionally study this issue … I can say that one of the options which could be considered is attaining the levels which were in place at the time of the signing of the agreement,” RIA news agency on Saturday quoted the minister, Alexander Novak, as saying.

OPEC and non-OPEC ministers meet in Vienna on June 22-23, and a final decision will be taken there.

The existing deal came into force on January 1, 2017, and envisaged that global oil producers would cut their combined output by 1.8 million barrels per day (bpd) to cut bloated stockpiles and prop up oil prices.

An industry source told Reuters that one of the options under discussion was to cap oil production in Russia at the level of October 2016, the baseline level for the current agreement. In October 2016, Russia’s oil output reached a 30-year high of 11.247 million bpd.

Russia had pledged to cut oil production by 300,000 bpd to 10.947 mln. But in March and in April this year it failed to fully comply with the deal, pumping at the pace of 10.97 million bpd, a 11-month high.

OPEC’s semi-annual meeting in Vienna on June 22 will be followed by a meeting with non-OPEC producers including Russia the following day.

Oil prices have risen to $80 per barrel, the levels unseen since late 2014. Russian President Vladimir Putin said on Thursday that the price of $60 “suits Russia”.

Novak was also quoted as saying on Saturday he expected Iran to reduce its output by no more than 10 percent as a result of the move by the United States to withdraw from a nuclear deal and reinstate sanctions against Tehran.

“I think the output reduction will not be as significant as many expect. Some 10 percent is probably the maximum level,” he said when asked if he agreed with an estimate that the sanctions could remove as much as 800,000 barrels a day from the market.

Novak also estimated that the “geopolitical risk” premium to the oil price was around $5-$7 per barrel.