Alexander Novak says Russia considers it possible to extend its participation in an output reduction agreement.
The possibility of the Organization of the Petroleum Exporting Countries (OPEC) extending its output reduction agreement for another six months is a prime topic of debate as a growing number of observers challenge the cartel's claim that its cutbacks have been effective and are enough to bring about a market re-balance – and now non-member Russia says such an extension may in the cards too.
Alexander Novak, energy minister to the former Soviet Union, told media that his country considers it possible to extend its participation and will decide on the issue several months short of the agreement's expiry date.
He said, "In my opinion, it is too early to talk about it now; we have such opportunity and we should make the decision in April or May."
Alexander Novak, energy minister, Russia
In my opinion, it is too early to talk about it now; we have such opportunity and we should make the decision in April or May
Eleven non-OPEC countries, including Mexico and Kazakhstan, joined the agreement to cut total output by 1.2 million barrels per day (bpd) and pledged to reduce production by 558,000 bpd on a voluntary basis.
Novak's opinion is ironic, considering Moscow repeatedly warned prior to the initiation of the cuts that such reductions would be unlikely to make much of a difference in oil prices; moreover, Gerald Celente, president of Trends Research Institute, was quoted by Sputnik News as saying, "Should major oil producers agree to cut production, as soon as prices go up, rig activity will ramp up from all those producers who have been sidelined by low prices."
While news of Russia's participation in the OPEC agreement was greeted with surprise in some analytical circles, more recently it was revealed that the effort of non-members is to date not all that it's cracked up to be: Bloomberg data shows that 269,000 bpd of the pledged reduction of 558,000 barrels has been taken of the market, which translates to a 48 percent compliance rate and a far cry from the 90 percent-plus rate achieved by OPEC members.
Still, Novak's consideration of an extension could translate into a bigger overall success for the cartel, especially now that experts are openly doubting its ability to drive prices any higher than they already are.
This was the view taken this week in an Oilprice.com story, which pointed out that with prices stuck at $50-$55 per barrel and the U.S. steadily ramping up its capabilities, "OPEC has no useful moves except for reporting its ‘strong commitment’ and ‘extraordinary support’ to the cuts, and waiting until May to try to talk oil prices up again with discussions about whether the six-month deal should be extended."
The story cited Bloomberg figures in noting that "Even with the record compliance rate in January, OPEC’s output – if the cartel keeps last month’s production - would still be 800,000 bpd a day more than what the market actually needs."
Earlier this week, Tamas Varga, analyst for PVM Oil Associates, relied on OPEC data itself to suggest a possible course of action: "Based on OPEC's own numbers, the message is loud and clear: improve on compliance, cut production further, and extend the deal for the second half of the year if you want to avoid yet another year of global oil inventory builds."