Page 8 - RusRPTAug19

2.3 New OPEC+ oil production cuts deal reached
The OPEC+ members have agreed to continue production cuts until April next year. The agreement signed July 4 confirms the agreement reached in December. Then the countries agreed to reduce their daily production from October 2018 to a total of 1.2mn barrels, or about 3%. According to official statistics, the overall target has been reached during the spring. The agreement is not binding but is based on the continuation of consensus. Despite the restrictions, the price of the oil barrel has remained at around $60.
The team consists of 14 member states of the Organization of Oil Exporting Countries (OPEC) and 10 other oil producing countries. Its main double is Saudi Arabia and Russia. All in all, the parties to the agreement, with some exceptions, dominate the oil fields of Africa, the Middle East, Central Asia, Urals, Siberia, Malaysia, Mexico and Venezuela. The production of Venezuela and Libya has, however, already collapsed in the past due to the turmoil. According to energy company British Petroleum statistics, OPEC's share of world oil production in 2018 was 42%, Russia 12% and other OPEC + members 7%.
For the first time, OPEC+ agreed on restrictions in October 2016. Since then, the interpretation of the agreement has been alive and the deductions have sometimes been cancelled.
The agreement has been seen as a response from Saudi Arabia and Russia to the growth of North American shale oil production. Thanks to the development of shale oil production methods, US oil production has doubled in the decade. US and Canada's share of oil production in 2018 was 22%.
Iran, abstaining from the restrictions, announced its support for the agreement, but expressed its dissatisfaction with bilateral cooperation between Saudi Arabia and Russia. According to it, the co-operation challenges mainly OPEC's unified line of business in the Middle East and Africa. Russia's actions can also be seen as part of Russia's overall commitment to closer economic relations with the countries of the Middle East.
Russian production constraints have been fuelled by the pollution of the Druzhba pipeline running from Ural to Central Europe in April (see BOFIT Weekly 21/2019 ). This has led to temporary production cuts. On the other hand, many Russian oil companies have expressed their dissatisfaction with the production restriction agreement. The state-owned large oil company Rosneft is therefore not going to postpone its new projects.
2.4 CBR urges government to continue saving excess revenues in NWF
In mid-June a new wave of public discussion started in Russia on fiscal policy. However, this was not a usual debate within the framework of the budget- drafting process. The discussion was triggered by a statement from CBR Chair Nabiullina who called on the government to continue transfers of its surplus in sovereign funds once the fund’s maximum level has been reached.
Nabiullina’s concern reflect accelerated growth in the sovereign fund over the past 1-1.5 years: on our estimates, the government was converting its surplus into FX and then saving the latter in its special current account at a high pace of around $3-5bn per month. Russia’s budget legislation sets a maximum level for its reserve, the National Welfare Fund (NWF), at 7% of GDP. In gross terms, which include monies let from the NWF for funding of various projects or in the form of aid to state companies and banks, the fund crossed its upper limit some 4-5 months ago.
8 RUSSIA Country Report August 2019 www.intellinews.com