Russia OPEC+ partners ready to act if needed, but oil prices likely to correct: Novak

OPEC+ countries are ready to take action to adjust their oil production plans if needed, however, recent signs of price weakness are likely a short-term result of trade and geopolitical shocks, Russian Deputy Prime Minister Alexander Novak said in an interview published June 17.

Speaking to the Vedomosti financial newspaper, Novak endorsed the oil demand prognoses of the OPEC Secretariat, which tends always to be more bullish than forecasters such as the International Energy Agency. In particular, China's oil demand would likely grow at a rate of 2.5%/year from 2023-2050, he said.

He also acknowledged the discomfort of oil producers over recent weak prices, and stressed the importance of collective measures to restrain oil production in recent years under the auspices of OPEC+, which is led by Russia and Saudi Arabia. Oil prices prior to the latest military conflict between Israel and Iran had fallen close to $60/b, but have recovered in recent days with the escalation in the Israel-Iran conflict.

"Current global oil prices are a short-term consequence of market competition in the context of the strengthening of trade wars and geopolitical tensions, and don't suit the majority of major oil producers," Novak said. "Therefore oil prices will correct due to the leveling effect of market shocks and return to growth."

OPEC on June 16 nudged down its 2025 world oil demand growth estimate, but said demand for crude from OPEC+ sources would increase further this year and next at the expense of rivals in the Americas. It predicted global oil demand would rise 1.29 million b/d in 2025, down from its May estimate of 1.3 million b/d, and left its 2026 forecast unchanged at 1.28 million b/d. The estimates for both years are well above those of the IEA.

"OPEC objectively assesses the situation on the world oil market and we hold in high regard the competence of OPEC's experts," Novak said.

"As far as any corrections are concerned, OPEC+ countries are in constant contact, monitor the situation on the market, and are ready to flexibly and quickly react to any change in the market situation," he said. "If necessary the parameters of the [production cut] deals can be corrected -- and in the future to ensure the optimal relationship between demand and supply."

Eight members of OPEC+ implementing 2.2 million b/d of voluntary cuts have used low inventories as a key rationale for returning the barrels to market -- including with 411,000 b/d of quota hikes in May, June and July -- prompting speculation that the alliance had foregone price defense in favor of a market share approach.

Attempts to shore up the crude market in recent years have been undermined by poor quota compliance -- which is now being rectified by some with compensation cuts -- surging production in the Americas, volatility driven by conflict and sluggish Chinese demand.

World oil prices have surged in recent days in response to the Middle East crisis and worries over any potential curbs on shipments of oil through the Strait of Hormuz.

The Platts global benchmark Dated Brent was last assessed at $73.63/b on June 16. Platts is part of S&P Global Energy.