OPEC+ deal could see oil rise to $40-$45/b by year-end: Gazprom Neft CEO

The new OPEC+ oil production deal will not cause prices to rise immediately but may see them climb steadily to $40-$45/b by the end of the year, Gazprom Neft CEO Alexander Dyukov said Tuesday.

The deal, finalized by OPEC and its non-OPEC allies over the weekend, stipulates a 9.7 million b/d cut for OPEC+ members in May and June. The reduction in output may reach 15 million-20 million b/d globally with support from the US, Canada, Norway and other producers.

However, markets witnessed a modest reaction to the deal with crude even dropping slightly on fears the agreed curtailment would not be sufficient to offset oversupply caused by the coronavirus pandemic.

"Of course, we should not expect a sharp increase in prices immediately after the deal...In the optimistic scenario, the price could reach $40–$45/b by the end of the year with further growth in 2021," Dyukov said in an interview published in Russian daily Kommersant.

It was extremely difficult to call the OPEC+ cut "excessive or insufficient", Dyukov said, as it was unclear how demand would develop. "It is very likely that we are on the verge of a new Great Depression," he said.

"We assume that the second quarter will be the most difficult, but we hope that the removal of quarantines and the restart of business activity will begin in the summer, and oil demand can reach a level close to the pre-crisis level in the fall."

According to Dyukov, fighting for market share was "pointless" in current economic conditions with the world facing a steep drop in demand, adding the OPEC+ deal was necessary.

Gazprom Neft plans

Dyukov declined to comment on Gazprom Neft's production quota under the new OPEC+ deal, but said it would affect the company's plans for output to reach 100 million mt, or 2 million b/d, in 2020.

"If it was not for the new reduction necessary for the market, we would have achieved this goal for the year," he told Kommersant.

Gazprom Neft's base scenario for its budget is the average of $30/b in 2020, Dyukov said.

Under the new OPEC+ deal, Russia is to cut 2.5 million b/d in May and June, 2 million b/d from July to December, and 1.5 million b/d from the start of 2021 to April 2022. Russia 's baseline for the cuts is 11 million b/d.