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Lukoil executive sees $60/bl in 2017: Update

02 Dec 2016 13:04 GMT
Lukoil executive sees $60/bl in 2017: Update

Adds comments on Russia reaching 300,000 b/d cut.

Moscow, 2 December (Argus) — The "dominant price" of crude in 2017 will be $60/bl once Opec and a group of non-Opec producing countries finalise a deal pledging to remove some 1.8mn b/d from the market, said Lukoil vice-president Leonid Fedun.

He added that it will "more profitable" for Russia to produce 10mn b/d at $50/bl — around the level prices have risen to since Opec agreed to cut output two days ago — than to produce more at a lower price. The executive also said that "in an ideal world, we would have agreement between Opec and Russia that we can live with $80/bl", adding that $80/bl would balance supply and demand over the next 10-15 years.

Russia has been producing at record levels of around 11mn b/d in recent months but the Moscow government has said the country's oil producers will contribute a cut of 300,000 b/d to the putative Opec deal with non-Opec countries that is expected to be formalised next week.

Lukoil is a private company so Fedun's remarks are interesting because they indicate support for the six month supply restraint accord stretches beyond state-controlled agencies and firms.

Fedun said: "We support the idea of oil production reduction. It does not cause problems because we traditionally reduce production in winter for seasonal repairs. We are not able to stop our main projects. If prices rise by $10/bł, our income rises by $1bn."

Fedun also said he expects the Russian government to offer compensatory measures for oil firms' participation in a production reduction, without expanding on how this might happen.

Later he said that Russia could easily reduce early 2017 production relative to current output. Seasonal maintenance generally trims around 150,000 b/d from output in the spring and another 150,000 b/d could be pared from low efficiency operations in western Siberia that have high water levels in their output.

The initial effects of the production cut will become obvious in the second quarter of 2017, Fedun said, with the ultimate results only visible in the second half of the year.