Oil Prices Surged by Possible Production Cutback

Alexander Novak, the Russian Energy Minister might with OPEC members in the coming month to discuss matters presumably proposing a cut in the oil production levels.

Iran plans on increasing its oil output by 500,000 barrels per day and boosting exports, making any agreement among OPEC nations to slash its output incrementally hard to achieve.

Anticipation that OPEC and non-OPEC producers could coordinate production cuts has been around all week, and a closing gain on Thursday would be the third in a row – a first this year.

“The announcement made yesterday by Russian Energy Minister Aleksandr Novak about Saudi proposal to reduce production is incorrect”, a source in the oil sector told the newspaper, TASS reports. Still, this month’s price slump to a 12-year low has put the country under increasing financial pressure.

The move pushed up price of benchmark North Sea Brent futures by as much as 8 per cent to almost $36 a barrel.

Opec kingpin Saudi Arabia reported a record state budget deficit of around $100 billion pressured by faloling oil prices. “There is a chance that OPEC, Russia and some other non-OPEC producers could come to an agreement, but it’s not likely”.

Prices have slid more than 50 percent since Saudi Arabia led a 2014 decision by the Organisation of Petroleum Exporting Countries not to cut output amid a global oversupply in order to defend market share and drive out higher-cost producers.

Saudi Arabia has repeatedly called on non-members to contribute to output cuts if they want the organization to help producers deal with the oil glut with the world running out of space to stockpile unwanted crude.

Iran provided the biggest increase in Opec supply, after some USA sanctions were lifted on 16 January as part of a deal to make Iran scale back its nuclear programme. The minister said Russian Federation would be willing to discuss output with OPEC, according to the news service.

But analysts at Barclays Capital were unimpressed: “We remain highly sceptical that such a meeting will result in credible cuts in supply; thus, we see this as nothing more than an attempt to shift market sentiment, and we do not expect that it will change the physical market imbalance”.

Russian Federation hasn’t begun internal discussions on how any production cuts would be implemented, Novak said in an interview with Bloomberg Television, adding that a reduction is only possible if all exporters agree to participate.