Russia affirms pledge to see Opec cuts deal through to the end

[MOSCOW] Russia is committed to seeing its pact with Opec (Organization of the Petroleum Exporting Countries) through to completion, whether that means starting discussions about a phase-out at the next meeting in June or prolonging output cuts into 2019, said Energy Minister Alexander Novak.

"As soon as the ultimate goal of our deal is achieved - which is the balancing of the market - we will start considering gradual withdrawal," Mr Novak said in a Bloomberg television interview in Moscow.

"That might start to happen starting with the third or fourth quarters" and discussion of an exit strategy at the group's next meeting in June can't be ruled out, he said.

However, if the situation in the oil market required the deal to be extended into 2019 then Russia would agree to that, the minister said. "We will act depending on the current situation," he said.

The Opec, Russia and allies including Mexico and Kazakhstan started 2018 on a high as their success in clearing a chronic glut pushed Brent crude above US$70. That surge prompted speculation that they could start discussing phasing out the production cuts before the deal expires at the end of the year. More recently, signs of market weakness have reappeared due to booming US shale output, raising questions about whether the deal would need to be extended into 2019.

Mr Novak said he isn't worried about the growth in shale oil, nor the possibility that the US could overtake Russia as the world's largest crude producer.

The signals from Saudi Arabia, the largest supplier in Opec, suggest little desire to end the historic deal with Russia early. Producers should keep cutting for the whole year, even if it causes a small supply shortage, the kingdom's Minister of Energy and Industry Khalid Al-Falih said last month. The nation is seeking higher prices to sustain it through a period of radical change to its domestic economy and bolster the value of its state oil company prior to an initial public offering, according to RBC Capital Markets.

When the time is right to end the production cuts, Mr Novak said it should be done gradually, echoing comments from his Saudi counterpart earlier this month.

After disagreeing about the strength of supply and demand late last year, both Opec and the International Energy Agency (IEA) now forecast that the production cuts will succeed in eliminating the oil inventory surplus this year, achieving the stated goal of the deal. That success would be due in large part to the collapse in Venezuelan production amid an economic crisis, which could even put the market decisively into deficit by the end of the year, the IEA said.

BLOOMBERG