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JP Morgan sees low probability of OPEC-Russia deal

29 January 2016 15:38 (UTC+04:00)
JP Morgan sees low probability of OPEC-Russia deal

Analysts of the US JP Morgan bank see a low probability of a deal on oil production cuts between OPEC and non-cartel countries in the near-term.

While the similar headlines on the possible OPEC-Russia cooperation have caused brief rallies in oil prices last year, the recent rhetoric is different in the matter of the involvement of parties from Russia, the analysts said in a report, obtained by Trend.

“From oil producer firms to now the involvement of the Russian oil pipeline operator, we note there is more weight in these talks now than there was before – at least from one side,” they said.

Russian Energy Minister Alexander Novak confirmed Russia’s readiness to meet with producers to discuss oil production. He said that the topic of discussion at the planned OPEC meeting in February with representatives of other oil-producing countries could be the question of oil production reducing for each producer country at the level of five percent, but a general agreement is needed for it.

Regarding the Russia’s involvement in the possible deal, analysts have two key concerns: how production will be cut with multiple oil producers and what magnitude of burden Russia will share with OPEC members.

As for the first concern, analysts think that the production can be reduced via the monopoly pipeline operator that can control the flows of oil from the country.

Regarding the burden that Russia could share with OPEC, analysts said that despite Russian production of crude being close to Saudi Arabia’s, it is unlikely, that the country will effect the same level of production cut.

“Potentially, this will happen with Russia’s cooperation limited to half the percentage reduction that OPEC members need to make for the adjustment,” analysts said.

Analysts said that one of the main concerns on a possible deal is whether OPEC producers will reduce production and keep patience for markets to rebalance or will only make cuts symbolically.

That will be one of the biggest challenges for the cartel, they said.

Production cuts scenarios and potential reduction in production from JPM 2016 expected levels (kbd)

Only MEG

All members

Including Russia

Algeria

54

46

Angola

89

75

Ecuador

26

22

Iran

158

133

Iraq

215

182

Kuwait

282

140

118

Libya

20

17

Nigeria

93

78

Qatar

32

27

Saudi Arabia

1038

520

439

UAE

292

145

122

Venezuela

120

101

Russia

251

Total

1611

1611

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