MOSCOW – The alliance of OPEC, Russia and other oil producers, known as OPEC+, should focus on the global market share for the group’s crude once demand starts recovering from the coronavirus crisis, Moscow said on Wednesday.
OPEC+, set up in 2016, has worked to support prices by cutting output. But Russia and others have long complained that this has mainly benefited U.S. producers which have ramped up output and snatched market share.
Russia and OPEC member Saudi Arabia spearheaded the latest efforts by OPEC+ to cut production by the equivalent of 10% of global supplies from May 1 in a bid lift prices as demand for crude plunged by as much 30% due to global lockdowns.
The deal seeks to reduce a glut of oil that is struggling to find a home as global storage facilities rapidly fill.
Riyadh, Moscow and other OPEC+ members have also pushed for curbs from other producers, particularly the United States.
Russian Energy Minister Alexander Novak said that, once demand returned, OPEC+ should shift strategy and focus on the group’s market share to evaluate how effective its actions were. OPEC+ now has commercial oil inventories as a main focus.
“Stocks, supply and demand balance should be closely followed but it makes sense to switch to targeting market share which belongs to OPEC+ given increase in global demand,” Novak told Interfax news agency when asked if the group should shift its focus from the stockpiles to market share.
Oil demand had been expected to rise in 2020 until the coronavirus sent the market into reverse. But demand could start picking up as the United States, China, European nations and others start easing lockdown measures.
Russia has long complained that the main beneficiary of previous OPEC+ cuts was the United States, which became the world’s biggest oil producer, surpassing Russia and Saudi Arabia, as shale output surged and filled the gap left by OPEC+.
But oil prices in the latest crisis have plunged well below breakeven for many U.S. shale producers, driving down output.
OPEC+ producers have typically produced about half of global needs, with the rest coming from others, including the United States. OPEC+ has said it wants its move to cut output by 9.7 million barrels per day (bpd) matched by non-OPEC+, so a total of almost 20 million bpd is removed from the market.
Russia believes global demand has already hit a floor, after dropping by 20 million to 30 million bpd.
Russia will be cutting nearly 2 million bpd in oil production, or 19% from February levels, Novak told Interfax, with no companies exempted, including foreign oil companies which clinched production-sharing agreements in the 1990s.
Oil companies plan to target mainly mature oil fields and halt wells for maintenance, so they can resume quickly and possibly with better flows, sources have said.
Russia has cut domestic and export sales of light oil produced in western Siberia, its top oil province, energy industry sources said on Wednesday.
“Looks like oil companies took production cuts seriously – we are getting nearly 19% less (of usual supplies in May),” one of the traders working at Russia’s domestic market said.
Moscow would meet its commitments in full, Novak told Interfax, as Russian oil output was projected to fall by up to 15% to between 480 million and 500 million tonnes (9.6 million-10 million bpd) this year, its first annual decline since 2008.