Russia, Vitol Urge That OPEC Cutbacks Be Extended - While Saudis Set January Record For Exports

by Ship & Bunker News Team
Tuesday March 20, 2018

More evidence that the Organization of the Petroleum Exporting Countries (OPEC) will continue its crude production cuts indefinitely came Tuesday from Russia, which clearly and forcefully declared to American media that it will stick with the cartel until the "ultimate" goal of market rebalance is achieved. 

Alexander Novak, energy minister for the former Soviet Union, told Bloomberg television that Moscow is determined to see the cutback deal followed through to completion: "We believe that at a certain point the market will reach its balancing point...and as soon as the ultimate goal is achieved, we will start considering gradual withdrawal, or exit from this deal."

He went on to say that "Most importantly, all the parties to this agreement are committed to achieving the ultimate goal of market rebalancing, and only after that further actions are to be considered and taken.

When asked when he sees the market rebalancing, Novak replied, "There are different assessments on that; we monitor the situation closely, and we believe that it might start to happen starting with the third of fourth quarter.

"But again, it's hard to predict anything right now."

Declaring even stronger support for the continuation of the OPEC cutbacks  on Tuesday was Ian Taylor, chairman of trading giant Vitol, who told The Financial Times that despite current prices, the crude market is "quite soft actually" and surging U.S. shale output is weakening the outlook for oil.

He said despite OPEC and Russia having agreed to maintain the cuts for this year, they will llkely need to extend it into 2019: "My guess is they'll keep them going; the [higher] price is making up for what they have cut in terms of production, but I don't think they should be looking at this in terms of defending market share."

Still, Taylor played it safe by conceding that crude prices may escalate to $70 before dropping back to the $60s later this year, and he said that while U.S. shale is "undoubtedly coming on and it's coming on pretty fast", there are still questions over just how much it could grow.

While Novak and Taylor's comments presume that the OPEC cuts are working and all participants are falling in line under the deal, Bloomberg provided a nasty reminder that reality may be somewhat different than rhetoric by reporting that Saudi Arabia's exports of diesel and gasoline surged by 27 percent to a record 1.912 million barrels per day (bpd) in January.

Bloomberg pointed out that this means the kingdom's total oil shipments overseas exceeded those in October 2016, "the reference month for a deal with OPEC and other producers to curb pumping."

The news agency went on to say that while the Saudis pumped 9.98 million bpd in January, remaining below a cap of 10.058 million, "traders don't just care about what gets pumped from oil fields" and added that only Iran, Iraq, Kuwait, and the United Arab Emirates pumped more crude on a daily basis in January than Saudi Arabia exported to buyers of its refined fuels.

Recently, ING Groep NV suggested that the determination of so many OPEC members to pump as much crude as possible in order to thwart the Americans making further inroads into their traditional export markets will, in all likelihood, cause the cutback deal to soon fall apart.