Russia has the capacity to set a new oil-production record, but won’t decide whether the market needs those additional supplies before a meeting later this month with its OPEC allies.
The country could boost output by as much as 300,000 barrels a day in the medium-term, which would beat the post-Soviet record set in October 2016, Russian Energy Minister Alexander Novak said on Wednesday. It’s in everyone’s interest to keep the oil market balanced, so Russia will discuss supplies with the Organization of Petroleum Exporting Countries in Algiers on Sept. 23, he said.
“We have not yet taken any decisions on production growth, we’ve just spoken about the potential we have and the spare capacity,” Novak said in an interview with Bloomberg television in Vladivostok, Russia. “We will be discussing these decisions and steps we plan to take in Algeria.”
Russia is officially disclosing its spare crude-production capacity for the first time, before crucial talks about how the group known as OPEC+ will respond to a series of oil-supply disruptions from Venezuela to Iran. While the producers are in the process of increasing output before the expiry of their supply-cuts deal at the end of the year, Novak said the effectiveness of the joint effort underscores the need for it to carry on next year.
“Regardless of whether we coordinate production volumes and whether we once again install these voluntary limitations upon ourselves or not, the mechanism has shown its efficiency,” Novak said. “That is why we believe that we would need to continue cooperation in any case.”
Speculation is swirling over whether a potential supply gap can be filled as U.S. sanctions curb Iran’s petroleum exports. Some of the Middle Eastern nation’s customers are already halting purchases before the restrictions formally take effect in November. Still, there are also doubts about the strength of global oil demand due to the burgeoning U.S.-China trade war and a slump in emerging markets.
“Our decisions and our actions are based on the assumption that we need to maintain market stability,” said Novak. “Currently, the market is in a position where we can say that it’s close to a balance point. That’s why we need to very carefully study the consequences of any decision,” considering seasonal trends in demand and supply growth in countries including the U.S., he said.
Novak will meet U.S. Energy Secretary Rick Perry in Moscow on Thursday and discuss the state of oil and gas markets and companies in both countries. The American official, who met with his Saudi counterpart in Texas earlier this month, is visiting just weeks before sanctions hit Iranian oil, while some lawmakers are also pushing a potential ban on U.S. imports of Russian crude and fuels.
In late 2016, Russia joined OPEC and several other major producers in cutting production to end a supply glut that was depressing prices. They agreed in June to start rolling back those reductions, adding about 1 million barrels a day to the market partly in response to calls from U.S. President Donald Trump to ease pressure on consumers.
That decision was for a collective output increase and there’s no need to allocate new individual quotas to each group member, Novak said. Even though some countries are unable to boost production, it’s in everyone’s interest to ensure the market remains balanced, he said.
Russia has been one of the key beneficiaries of the June deal. It has restored output close to post-Soviet records, while crude prices in rubles have reached historic highs amid the currency’s weakness. The country currently plans to maintain its output at about 11.2 million barrels per day through to the end of the year, a government official said in August.