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Russia will not drastically cut production - it makes no sense

05 October 2022

Belogoryev Alexey M. Deputy Principal Director on Energy Studies, Director of the Center for Energy strategic analysis and forecasting

Alexey Belogoryev, Deputy Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Davydov.Index on the planned OPEC+ decision to cut oil production:

“In this case, there is no question of an artificial reduction in production volumes, as happened in previous years. We are talking about the decision of OPEC + to reduce oil production quotas - most likely by about 1 million barrels per day in general for OPEC +. And this is unlikely to lead to a sharp physical decline in production not only in Russia, but also in other countries, because within the framework of OPEC+, production this year was already below the established level. That is, it is possible to produce more, but due to problems in various countries, OPEC + greatly exceeds its plans to reduce production.

So, what is now planned is an almost symbolic recognition of the fact that oil production is falling. It is possible that Saudi Arabia and other Gulf states will all cut real production slightly, but the reduction will not be significant. Basically, in my opinion, this will be a formality, and this is how the market treats this event. And this reduction is attributed to demand forecasts - they remain very uncertain - largely due to lockdowns in China, which are being renewed all the time in different regions. So, China, in terms of oil demand, is an essentially uncertain cause.

But in general, big fears of a recession, especially in economically developed countries, are forcing lower demand forecasts. At the same time, the overall supply remains more or less stable, respectively, oil prices are declining. And OPEC+ is trying to stop this decline by fixing the price in the corridor of 90-110 dollars per barrel of Brent. This corridor is, perhaps, now a comfort zone for most of the OPEC+ countries.

In general, Russia will not drastically reduce production - there is no point in this, it already produces less than its quota. But due to problems with demand, production in Russia may still decline – especially after February 2023, when it is planned to impose an embargo on Russian oil products.”

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