EMEA News
Russia Coy on Extending OPEC Cutback Deal as UBS Insists Ending it "Not an Option"
As if to reinforce growing rumours that relations between Russia and the Organization of the Petroleum Exporting Countries (OPEC) are strained, Alexander Novak, energy minister for the former Soviet Union, says there is no immediate need to talk about additional oil output cuts.
He made the statement in an interview with the Oil and Gas Vertical magazine, published Tuesday.
While Novak's remark may hold favour with a sizeable body of analysts who insist the global glut is shrinking and we may have to soon shift gears and start worrying about demand outstripping supply, an equal amount of experts warn that inventories are still way too high and persistent overproduction by OPEC members excluded from its cutback deal along with U.S. shale producers are worsening the problem.
In the latter camp is UBS Group AG: Dominic Schnider, head of commodities and Asia-Pacific currencies at UBS's wealth-management unit, insisted that OPEC and its partners, including Russia, need to extend their cuts for at least three more months to keep crude prices at current levels.
He argued, "Just out of necessity they will stick together; falling back to the old scheme with decent U.S. shale-supply growth expected for next year is not an option."
Schnider went on to point out that Saudi Arabia needs to adhere to the cutback deal in the hopes of encouraging oil market stability - which in turn would presumably add value to the long-planned IPO offering of state-run Saudi Aramco.
He added that for Russia, "price gains are more valuable than volume gains: how much can you really pump more from last year's peak production level?
"We think they're going to stick to the pact and over the coming months they are likely to extend it - hopefully for six months and not three months."
The rumours of an emerging rift between OPEC and Russia began last month, based on Novak repeatedly saying any formal talk of extended or deepened cuts is premature; reports that many producers are planning record production levels once the cutback expires; and the fact that Russia's cutback compliance is well short of what was promised.
