Oil Prices Reaching a Fair Level Due to OPEC Cutbacks: Russia

Alexander Novak, energy minister for Russia

Alexander Novak, energy minister for Russia, which has reportedly cut nearly twice as much production as expected under the Organization of the Petroleum Exporting Countries' (OPEC) reduction agreement, says oil prices are now "closer to fair" - and he also suggested that his country may enact output at a faster pace.

During a conference between Russian president Vladimir Putin and his ministers, Novak noted that the OPEC initiatives have boosted prices by $10-$15 and that the current stabilization of above $50 is "closer to fair."

He added, "Overall, according to preliminary data, the deal participants have lowered their combined crude production by 1.4 million barrels per day (bpd)."

He claimed that in January Russia lowered its output by 117,000 bpd, although the country's finance ministry pegs the amount at 98,000 bpd - which is still double the 50,000 figure expected for last month.

In a story published by Sputnik, Novak also told reporters that with regards to the implementation of reduction plans submitted by the country's private companies, "It is possible that they will be [implemented] at a faster pace; it depends first of all on the companies themselves, on the investment policy."

While all this was presumably intended to bolster the standing of the heavily-criticized OPEC agreement, the fact remains that Russia is planning to quickly increase output to new post-Soviet record highs once the deal expires in June of this year - and other cutback participants, such as Saudi Arabia, have indicated that a renewal of the deal will not be forthcoming.

Even though reaction to OPEC's cutbacks this week have negatively influenced trading to a degree, the week ended on a positive note, with West Texas Intermediate settling up 29 cents to $53.83 and Brent settling up 25 cents to $56.81 for a 2 percent gain on the week, the first significant weekly rise of 2017.

However, Friday's performance wasn't due to Novak's remarks, but to U.S. president Donald Trump imposing sanctions on Iran after the Islamic republic violated United Nations agreements by test firing a ballistic missile, as well as U.S. job growth surging more than expected for January.

Carl Larry, director at Frost & Sullivan, said, "I think that the consensus is that Iran supported the market, but I think that it's probably more on the stronger jobs report leading to higher demand in the near term."

As OPEC enters its second of six months of cutbacks, the analytical community is increasingly leaning towards a specific oil price that they think will govern the market for the foreseeable future, and this was most recently expressed by Fadel Gheit, senior energy strategist at Oppenheimer & Co., who told Bloomberg, "We're probably going to see $2 to $3 increases in prices until over the next two to three years we're going to get what I believe will be the new normal, and it's going to be about $60 per barrel; it's not $90, it's not $100, but it's not $30 either."