Russia is studying a proposal on global oil production reduction by Organization of Petroleum Exporting Countries (OPEC). The five percent cut in oil production was proposed to ease oversupply situation in global oil market and support falling price. However, it's not clear that Russia whether referring to old proposal by OPEC or a new proposal by OPEC led by Saudi Arabia. There's also a request came up for a meeting between OPEC and non-OPEC oil producing nations.
Russian Energy Minister Alexander Novak's statement, now, all eyes on the latest proposal on oil production cut to check the glut in global oil markets. If any agreement is reached on this, it'll be a first deal on global oil production in the past decade. Saudi officials didn't comment on this. But an OPEC delegate from the Gulf region said that the proposal was put forward by Venezuela and Algeria.
Russia is a non-OPEC oil producing nation and one of the top oil producers in the world. The output cut represents for Russia to the tune of 500,000 barrels per day (BPD). The news about possible production cuts started propelling oil prices upwards.
Benchmark Brent futures LCOc1 jumped as much as eight percent to nearly $36 a barrel on the speculation of production cuts. Brent was trading at $34 a barrel. If the deal is finalized then it would result in reduction of one million barrels per day, as reported by Reuters. Novak also said that there was a proposal on convening a meeting between OPED and non-OPEC members. "And Russia is ready for such talks," said Novak.
Oil producing nations would naturally welcome higher prices regime as the lower oil prices are squeezing their budgets. The continuous oil price drop forced some countries to devalue their currencies as well. The oil price tumbled to 12-year low at $27 per barrel from $115 about 18 months ago.
Daily Star reports that the shale oil production book in the US led the way of increasing oil production. OPEC has also decided to stick to their production level to keep up their market share. Novak said when asked if Saudi Arabia had made a proposal to cut output, that "indeed, these parameters were proposed, to cut production by each country by up to 5 percent. This is a subject for discussions, it's too early to talk about."
The low oil price regime is keeping pressure on many oil-rich nations including Saudi Arabia, which had a deficit budget of $100 billion. In Russia also, its currency Ruble fell to all-time low. Saudi Arabia was asking non-OPEC members to cut oil production and that'll help OPEC deal with oversupply situation.
However, Russia's President Vladimir Putin is yet to comment on the latest situation. Putin considers the oil sector as a key bargaining chip in building up relations with the Western countries, as published by World Oil. Recently, Western sanctions were imposed over Russia for its annexation of Crimea region and conflict in Syria.
The delegate from Gulf OPEC further said that "Gulf OPEC members and Saudi Arabia are willing to cooperate for any action to stabilize the international oil market." Earlier, Russia didn't agree on oil production cuts saying that its oil fields are different from those in Gulf region. Hence, it's difficult to shut oil rigs.
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