As crude oil prices rose to their highest level in nearly five months, Russia issued a “brake” signal to OPEC that it might consider increasing production after the expiration of the cut-off agreement in June 2019. According to Bloomberg, on April 9, Russian President Vladimir Putin said that although Russia will continue to cooperate with OPEC members, whether Russia will continue to reduce production after June this year will depend on market conditions.

No intention to fight “crude oil price war” with the United States

According to Reuters, Russian official Kirill Dmitriev said at a meeting on April 8 that the current decline in crude oil inventories may lead Russia to propose an increase in production at a meeting with OPEC members in June this year to stimulate market vitality.

“Russia and OPEC together to reduce production is to stabilize the market, for this purpose, production reduction, increase are our choice. Now the price of crude oil has stabilized and the stock of crude oil has declined. Now we have seen the possibility of increasing production after June. Even if production is increased, it does not mean the end of Russia’s cooperation with OPEC, but a reasonable continuation on the current basis. Kirill Dmitriev told Reuters in an interview.

Kirill Dmitriev, chief executive of RDIF, Russia’s sovereign wealth fund, has been an important supporter of OPEC+’s crude oil reduction agreement since 2016. In recent months, he also publicly expressed support for Saudi Arabia’s demand for production cuts, saying it was still too early to discuss stopping the cuts.

However, Russia’s attitude changed after crude oil prices rose above the $70 mark and said it was appropriate for Russia to reach that level. According to the Moscow Times, Kirill Dmitriev said in January that Russia should not wage a “crude oil price war” with the United States, but that it would still abide by the “OPEC+” cut-off agreement in the short term.

In fact, in the past year, Russian oil executives have repeatedly pressed supporters such as Russian Energy Minister Alexander Nowak to stop production cuts. Igor Sechin, a senior executive at Rosneft, a Russian oil company, has said that if Russia continues to cut production, it will cede its share of the global crude oil market to the United States.

Increased market uncertainty

In the face of Russia’s attitude change, the market reacted quickly. On April 9, crude oil prices fell slightly. Brent crude oil prices fell from $71.34 per barrel last week to $70.61 per barrel. WTI crude oil also fell from $64.79 to $63.98 per barrel.

According to the latest data released by market research institutes, “OPEC+” crude oil production in March this year has dropped 534,000 barrels per day to 3,000,000 barrels per day, and since the end of 2018, the price of Brent crude oil has risen by more than 30%.

In the face of price fluctuations, OPEC members such as Saudi Arabia and the United Arab Emirates have said they will not stop cutting production. On April 10, in response to Russia’s proposal, Emirates Energy Minister Mazrui said that Russia still needed to comply with the cut-off agreement and would not easily increase production without consultation with OPEC countries. “According to the agreement, in March, Russia, Iraq and other countries have expanded their output cuts to a certain extent, and the market may reach a balance between supply and demand by the end of 2019.

At the same time, there are also news that Saudi Arabia will maintain a large-scale production reduction, which reached 324,000 barrels per day in March, and its crude oil production has reached the expectations of its energy minister, Khalid Falkh, and dropped to less than 10 million barrels per day, slightly below 9.8 million barrels per day.

In Russia’s view, the reason why it began to consider increasing production is that uncertainties in the crude oil market are increasing. According to Bloomberg News, Putin said on April 9 that uncertainties in the crude oil market are increasing. Before making a final decision, Russia should take into account the needs of local oil and gas companies. Political turmoil in Venezuela, Iran and Libya, members of OPEC, is also a measure.

It is understood that Libya, which is confronted by two major political forces in the East and west, has again erupted violent clashes in the past week. The oil-rich southern region is under the control of military forces in the East this year. On April 9, NOC, Libya’s state-owned oil company, pointed out that the safety of the oil field is still being determined and that crude oil production may be affected. Meanwhile, sanctions imposed by the United States on Iran and Venezuela have not yet eased, which has also exacerbated the tense situation in the global crude oil market.

Putin said: “We believe that investment will come only in the case of continuous production, otherwise there will be a global energy crisis. In the future, Russia will pay close attention to the crude oil market with OPEC’s main allies, Saudi Arabia and Persian Gulf allies.