MOSCOW: Russian Energy Minister Alexander Novak said on Tuesday oil markets will start balancing out once an output deal takes effect in May, but no significant price rise is likely in the near future due to high levels of oil in storage globally.
The Organization of the Petroleum Exporting Countries and other large oil producers, including Russia, have agreed to cut output by almost 10 million barrels per day (bpd), or 10 percent of global oil production, in May-June.
Additional cuts are expected from countries such as the US, Canada, Norway and Brazil to combat the fallout from the global spread of the novel coronavirus that has hit economic activity worldwide.
“However, you shouldn’t wait for a significant rise in the price of a barrel in the nearest future due to high inventories,” Novak wrote in a column in the ministry’s in-house magazine published on Tuesday.
The main concern for the oil market is even though the size of the output cuts are historically unprecedented, demand has fallen even more and storage for all the unused oil is shrinking quickly.
Fuel demand is down by 30 percent globally, and storage is becoming precious, with roughly 85 percent of worldwide onshore storage full as of last week, data from intelligence firm Kpler showed. Separately, Alexander Gladkov, the head of production and transportation department at the energy ministry, told an online conference on Tuesday the oil price was expected to average $30 per barrel this year.
The oil markets have fallen for eight of the past nine weeks. Novak also said in his column that he is counting on an economic recovery in China, a leading energy consumer, to help balance out the oil market. “We hope to see positive changes in the economies of other countries,” Novak said.
Under the global production cut deal, Russia is expected to cut its oil output by around 20 percent in May-June.
Russian oil producer Tatneft has already cut its output by around a fifth this month, according to sources and data seen by Reuters.
Rustam Khalimov, Tatneft’s first deputy general director for oil and gas exploration, said during the conference on Tuesday the company will stop production at its less efficient oil wells to cut output, while it plans to divert investments from production to oil refining.
An official at Gazprom Neft, Russia’s fastest-growing oil producer, told the same event that the development of hard-to-recover oil projects would slow down due to the global output deal.
Russia started pipeline gas deliveries to China in December as part of efforts to diversify away from commodity exports to Europe, its main consumer of oil and gas.