Russia has pledged not to abandon a deal with OPEC to keep a lid on oil supplies, even as crude prices rise, OPEC Secretary General, Mohammed Barkindo said on Monday.
A stronger-than-anticipated rally has raised concerns that Russian oil giants will seek an exit from OPEC’s agreement with Moscow and other producers to limit their output. Oil prices have rebounded nearly 60 percent since June, with Brent crude rising to three-year highs above $71 a barrel, prior to a pullback last week that wiped out its gains for 2018.
Those worries have been compounded by rising U.S. crude exports that threaten to loosen Russia and Saudi Arabia’s grip on key overseas markets at a time of strong economic growth and rising demand for petroleum products.
However, Barkindo says President Vladimir Putin and Russian Energy Minister Alexander Novak have assured him Russia won’t blink.
“I have heard and received assurances both from Mr. Alexander Novak and President Putin that they will remain committed to the OPEC, non-OPEC collaboration and the Declaration of Cooperation,” he told CNBC on the sidelines of the Egypt Petroleum Show in Cairo.
“They have proved this beyond any reasonable doubt through their high level of conformity to their supply adjustment, so I think there’s no concern here,” he said. “We are all in the same boat.”
Market-watchers have long been wary of Russia’s commitment to the deal. The nation’s oil and gas giants are seen as reluctant participants in the agreement, which began in January 2017 and aims to keep 1.8 million barrels a day off the market through the end of the year.
Russia vowed in 2016 to cut its output by 300,000 barrels, but unlike the state-owned oil companies typical of OPEC, Russian energy giants are publicly-traded enterprises with shareholders.
The head of Russia’s Gazprom Neft on Friday said producers could adjust their commitments under the deal as soon as next quarter, Reuters reported. Gazprom CEO Alexander Dyukov said he hoped producers would agree to raise output since the market has essentially balanced after years of oversupply.
While it’s true many analysts believe oil supply and demand have reached a state of equilibrium, OPEC’s official goal is to shrink stockpiles of crude oil to the five-year average. On Monday, OPEC said inventories remain about 109 million barrels above that level. It warned the deal might not achieve its objective until the end of 2018.
Barkindo said it is in the interest of OPEC, Russia and other non-OPEC producers to continue coordinating policy even after the market rebalances.
“This is a work in progress and we are confident that a global forum such as the Declaration of Cooperation will serve as an insurance against future severe volatility and downturn that we had seen beginning in the autumn of 2014,” he said, referring to the start of a punishing three-year downturn in oil prices.
“I think we have learned enough lessons, and we are beginning to put some building blocks in order to institutionalize this partnership,” he said.
Asked whether he could see OPEC members fighting among themselves and with the United States for market share in Asia, a key demand center, Barkindo said the concern to the contrary is whether producers have invested enough in projects to bring new supply online to meet future demand.
OPEC on Monday raised its forecast for demand growth in 2018, but also said it now sees output from the United States and other non-OPEC member nations rising faster than the cartel initially anticipated.