Russian Federation warns of 'great risk' of oil overproduction

Andrew Cummings
June 13, 2019

On the production side, Russian Federation said on Monday it might support an extension of supply cuts that have been in place since January, warning oil prices could fall as low as $30 per barrel if producers supply too much crude.

President Vladimir Putin said last week that Russian Federation and the Organization of the Petroleum Exporting Countries disagreed over what constituted a fair price for oil, but that they would take a joint decision at the policy meeting. "A lot depends on the situation on the market in the second and third quarter, from the balance of supply and demand, and how the situation develops with uncertainties, trade wars, and sanctions pressures on several countries", he said.

A surprise increase in U.S. crude stockpiles also kept oil prices under pressure.

Russian Energy Minister Alexander Novak made the announcement during a meeting of the World Economic Forum in Strasbourg, France, which witnessed the participation of Saudi Energy Minister Khalid Al-Falih and Robert Dudley, group Chief Executive of BP.

The EIA on Tuesday cut its forecasts for 2019 world oil demand growth, which also pressured oil futures.

"The fact that this surplus has been mounting during the past couple of months despite a near record pace of exports in recent weeks is not only suggesting weak demand from the refiners but also a much stronger pace of imports than we had anticipated", Jim Ritterbusch of Ritterbusch and Associates said in a note.

While Russia may be happier with a lower oil price than Saudi Arabia, the OPEC+ accord has boosted its federal budget amid higher prices for energy commodities. "We are working to take preventative steps to avoid the scenario that was discussed", Falih said regarding the prospects of prices falling to $30 a barrel, in translated comments. While the expectations that producer cartel OPEC and Russian Federation would like to extend supply output cuts in support of low prices.

Despite this, MacPherson said "there is a limit to how much longer it (OPEC+) can continue to avoid addressing the serious challenge of being squeezed out by growing U.S. production".

The G-20 ministerial meeting on energy is scheduled for June 15-16 in Nagano, while the final leaders' summit will take place on June 28-29 in Osaka. Yet crude has since dropped more than 10% as the U.S.

President Vladimir Putin has shown he is reluctant to walk away from the agreement, which also ensures his political partnership with Saudi Arabia as economic ties tighten.

Other reports by iNewsToday