Russia’s Rising Oil Exports Threaten OPEC, Non-OPEC’s Output Freeze Deal

Russia’s Rising Oil Exports Threaten OPEC, Non-OPEC’s Output Freeze Deal

.Crude prices drop by over 2%

                  

Russia, one of the biggest oil producers in the world, will export more crude oil to Europe in April this year than it had exported in any month since 2013, and this will therefore, threaten  a global agreement between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members on freezing production in a bid to lift the price of crude.

This development, Reuters has reported, illustrates how hard it will be to enforce the agreement that is due to be finalised on April 17 in Qatar.

It also shows the potential for countries to use loopholes to keep exporting crude, and erode the intended impact on prices.

This is coming as the price of Brent crude oil slumped by 2.3 per cent on Thursday and West Texas Intermediate, the US benchmark price for crude oil, lost by 2.7 per cent.

Oil prices are down nearly five per cent from Monday for one of their worst weeks of the year.

Moscow said the agreement on freeze between OPEC and non-OPEC covered only production and not sales abroad, hence the country can raise exports while keeping production flat by re-routing some oil away from refineries and into exports.

The International Energy Agency said on Wednesday the deal may be meaningless, while Iran and Libya have said they will not participate, at least for now, and they also plan to raise production. 

Nigeria’s Minister of State for Petroleum, Dr. Ibe Kachikwu said the country expected oil exporters to agree a supply freeze in Doha next month but that the country also plans to boost its own output.

The increase in Russian exports is mainly because of planned maintenance at refineries that reduced their capacity to process crude.

Reports that members of the Organization of the Petroleum Exporting Countries as well as non-OPEC producers were discussing an output freeze have helped lift world oil prices from glut-induced 12-year lows hit in January.

Asked what would be covered by the agreement, Russian Energy Minister Alexander Novak told reporters: "The discussion is only about freezing production. And not exports." 

The high level of Russian oil exports next month was confirmed to Reuters on Wednesday by export pipeline monopoly Transneft.

According to the company, Russia is set to export 7 million tonnes from Baltic Sea ports in April, the largest volume since October 2013. That marks a nine percent increase on the 6.41 million tonnes planned for export in March.

Oil prices tumbled by over two per cent percent on Wednesday, with the US’s Energy Information Administration (EIA) saying that crude stockpiles rose 9.4 million barrels last week.

Oil prices have rallied about 50 percent over the past two months. While declining U.S. oil output and strong gasoline demand drove some of the gains, the bulk was powered by OPEC and other major producers' plans to freeze production at January's highs.

The oil minister of Nigeria, an OPEC member, was confident crude prices would stabilize after the producer group agrees to a supply freeze in Doha next month.