Key oil players will gather in the Russian city of St. Petersburg on May 24-26 to discuss key issues including the fate of the OPEC+ crude production cut deal and the impact of US sanctions on international energy markets. High-profile political guests including French President Emmanuel Macron and Japan's Prime Minister Shinzo Abe will put Russia’s international bilateral cooperation under the spotlight at a time when European companies are cautious over sanctions and Russia continues to increase its cooperation with Asian partners.
S&P Global Platts managing editor in Moscow Nadia Rodova discusses these issues, along with prospects for Russian oil production, with oileditors Rosemary Griffin and Nastassia Astrasheuskaya.
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NADIA RODOVA: Hello and welcome to S&P Global Platts Commodities Spotlight podcast for May. I’m Nadia Rodova, managing editor at Platts bureau in Moscow, and I’m joined here today by editors for oil news Rosemary Griffin and Nastassia Astrasheuskaya. Russia is hosting its biggest annual economic event next week, the St Petersburg International Economic Forum, on May 24-25. The forum traditionally gathers many top oil names. This year the oil discussion is likely to be dominated by the fate of the OPEC coalition’s production cut deal, and sanctions impacting energy markets.
Rosemary, you’ve been intensively covering OPEC-related issues over the past years. What do you expect from those meetings?
ROSEMARY GRIFFIN: Hello, Nadia. So I think top of the agenda will be the current status of the agreement. We’re a month away from the next OPEC+ meeting and it’s really an interesting time - prices are rising, the US has announced it is exiting the Iran nuclear deal, and Venezuelan output continues to fall.
Furthermore there is a growing consensus that the deal has mainly achieved its key aims. Stocks are broadly back to five-year averages and oil prices have gained 40% since the agreement came into force and recently touched $80/barrel. So this gathering of some of the key architects of the OPEC+ deal is going to be interesting. We’re expecting Saudi Arabian energy minster Khalid al-Falih, OPEC secretary general Mohammad Barkindo, and of course Russian energy minister Alexander Novak.
NR: Novak has recently said that they have not ruled out considering a reduction in quotas for the second half of the year if the market requires such steps.
RG: So they have always said that the deal may be reviewed in June and that they continue to monitor the market closely. Since Trump’s announcement Falih has given assurances that Saudi Arabia will work with partners to mitigate the impact of any supply shortages and ensure market stability. So there may be some movement towards bringing additional barrels to market.
NR: And Russia’s oil companies would more than welcome such a decision, if it is taken, Nastassia, right?
NASTIA ASTRASHEUSKAYA: Seems so, Nadia. Even though the deal is very lucrative for the Russian government and oil producers, many of them would be happy to get rid of production ceilings. Russia’s top oil producer Rosneft, which cut it output by 100,000 b/d under the deal, for example, said last week it will be able to restore that production within two months. Lukoil previously said it would also recover its output "shortly" after the deal ends. Gazprom Neft, the country's leader in terms of crude output growth, went even further to say it can recover output at some halted wells within three days. And while Rosneft and Lukoil's output had been declining even before the OPEC pact, Gazprom Neft has only cut its growth pace. All three have newly launched fields or projects awaiting launch, and look to let out their potential.
Production rise would allow oil producers to grow crude sales volumes to maximize their profits during relatively high oil prices at the moment. All the more so, as the recent US decision to re-impose sanctions on Iran and new sanctions against Russia add to market uncertainty.
NR: Iran sanctions and their impact on global and regional oil markets, as well as sanctions imposed against Russia are likely to be another important topic next week. Russian oil producers have grown accustomed to living with sanctions since 2014, and they have proved resilient even during the low oil price period. The latest sanctions, however, even though they are not directly focused on oil, add significant pressure.
RG: Yes, so I think people were surprised that Gazprom CEO Alexei Miller was included, He’d been left out previously, and some analysts have said that a next step could be sanctions against Gazprom’s operations. That could have huge implications on its activity in one of its key export markets - Europe. That being said we’re in a different environment to the one we were in in 2014, when the EU was closely matching US sanctions. Now there is a clear divergence between the US and EU approach.
NA: Despite the growing sanctions pressure though, the forum expects a number of high-profile foreign guests, including French President Emmanuel Macron and Japan's Prime Minister Shinzo Abe. Macron - at the start of his presidency and before – spoke openly about the need to relieve Russia of Western sanctions, so it will be interesting to hear his stance now. As for Abe, he has met with Russia's President Vladimir Putin several times in the past few years of the sanctions regime always with a number of economic deals emerging. Japan – a substantial buyer of Russian crude and LNG - was one of the countries that continued and strengthened cooperation with the country despite the sanctions. Several of its companies already take part and seek increasing participation in upstream and downstream projects. I would not be surprised to see more at this forum.
NR: We at S&P Global Platts will also be discussing these are other oil issues, including oil prices and the shape of the Russian oil market, during Platts Forum in Moscow on May 22nd.That was Nastassia Astrasheuskaya, Rosemary Griffin, and Nadia Rodova today in the studio. Join us for Platts Forum and for our next Commodities Spotlight.