Gazprom Neft CEO says 'wary' of oil market overheating in 2022

Russia's Gazprom Neft has been working on increasing spare production capacity to bring additional barrels to the oil market in 2022, while the possibility of the market overheating remained, CEO Alexander Dyukov said Dec. 17.

Crude prices saw a slight recovery Dec. 16 after a three-week slide on fears over the impact of the omicron variant of the coronavirus on global oil demand.

Dated Brent was assessed by S&P Global Platts at $74.76/b on Dec. 16, up 2.65% on the day, but down from $83.125/b on Nov. 24 when the first case of omicron was reported.

In its latest report on Dec. 13, OPEC called the impact of the omicron variant "mild and short-lived," following the Dec. 2 decision of OPEC+ countries to continue with a planned 400,000 b/d production quota increase in January.

"In theory, there could be high volatility, but we know OPEC+ could help solve the situation. I'd rather be wary of some overheating and price increasing too high, which could affect the global economy and demand," Dyukov told reporters during a briefing, when asked about his expectations for 2022.

There is no reason to revise OPEC+ conditions on omicron fears at the moment, as sufficient global inventories were satisfying demand while it outpaced supply, he added.

"There should be flexibility and balance, we should revise but not change decisions every week," Dyukov said.

The sustainable oil price in the long term should be lower and in the range of $50-$65/b, he said.

"At the moment the price is rather stable, but in the long term it may cause producers other than OPEC+ to raise production, which may turn to overproduction and the price dropping," Dyukov said.

He expressed hope that OPEC and its Russia-led allies would continue cooperation beyond 2022, when their current agreement expires.

"Too many factors impact the oil market, uncertainties are hard to predict and sometimes the perfect storm situation makes the market rather volatile, but instruments such as the OPEC+ deal help stabilize the market," Dyukov said.

Observing the current situation in the market, Gazprom Neft set its 2022 budget based on oil prices higher than the conservative $50/b, he said.

Capacity increase

Gazprom Neft has been working on expanding spare production capacity to raise oil output if allowed by the market and the OPEC+ deal in 2022, Dyukov said.

Previously, deputy CEO Alexei Yankevich said the company would run out of spare capacity to raise production by the end of 2021.

"Everything is under control and we have created reserve spare capacity," Dyukov said.

"Wells are being drilled as we speak in accordance with our investment program started in the beginning of this year, which should give additional volumes next year," he added.

This would allow Gazprom Neft to increase production of liquid hydrocarbons by up to 10% in 2022.

"Based on the current understanding of the parameters of the OPEC+ deal, we see a 7% increase for liquid hydrocarbons, 10% for total hydrocarbons," Dyukov said.

Gazprom Neft said Nov. 18 it would hit its long-standing goal of reaching annual oil and gas output of over 100 million mt of oil equivalent, some 2 million boe/d, in 2021.