Oil in Global Economy Series: OPEC-Russia production agreement likely to be extended till H1 2019

In 2016, OPEC countries and other participating countries like Russia agreed to a production agreement that aims to reduce production by 1.76 million barrels per day, beginning January of 2017. While the initial agreement was for just six months, OPEC and countries like Russia have extended it twice by nine months each through the course of 2017. The latest extension extended the agreement until December of 2018. The agreement has helped reducing global oil inventories closer to the five-year average.

While Saudi Arabia has indicated that Russia and the Saudi kingdom would cooperate beyond 2018, Russian oil giant Gazprom believes that deal is likely to get extended beyond 2018 and at least until H1 2019. Russia’s two major oil companies, Gazprom and Rosneft have already expressed their dissatisfaction with the production agreement as it hinders their ability to increase production at a time when the price of oil is moving higher. At the last OPEC-Russia meeting, Russian energy minister Alexander Novak was reluctant to extend the agreement until 2018. However, Gazprom believes that at least another extension likely.

Gazprom had indicated that before the agreement it was increasing production to the tune of 8-9 percent per year but the production agreement has capped the growth below 5 percent. In 2017, Gazprom’s production grew by 4.1 percent y/y.