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Russian oil company sends mixed signal on supply issues

Head of Rosneft said oil prices won't rally enough to bring large-scale investments back.

By Daniel J. Graeber
Russian oil company sends mixed signal on supply issues
Russia could still put new oil barrels on the market, but supply-side pressures are expected to evaporate, a top executive says. Photo by Oskari Porkka/Shutterstock

VIENNA, Oct. 20 (UPI) -- Oil prices will move past $55 per barrel as supply-side pressures ease next year, though Russia has the ability to boost output if need be, Rosneft's CEO said.

Igor Sechin, a close ally of Russian President Vladimir Putin and head of privatizing oil company Rosneft, said there are no market forces standing in the way of an increase in oil production long term. Any surplus under normal conditions, however, should evaporate over the next year and a half.

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"We are to see the end of offer surplus period on the market and initiated normalization of the situation with commercial stocks of oil and oil products," he was quoted by Russian news agency Tass as saying. "Despite certain recovery of shale oil production in the United States, the overall level of U.S. oil production will probably remain lower than the 2015 highs."

Total U.S. oil production two years ago helped swing markets toward the supply side, eventually sending crude oil prices to below $30 per barrel in early 2016 as inventory levels swelled. Lower crude oil prices are curbing the ability of producers to exploit expensive U.S. shale and the global economy is recovering enough during the latter half of the year that inventory levels are shrinking.

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Sechin said from an energy forum in Vienna that, from his perspective, crude oil prices should move steadily beyond $55 per barrel, but not move high enough to increase the appetite for large-scale investments.

Sechin has been among the voices expressing reluctance over a proposal from the Organization of Petroleum Exporting Countries to freeze, or even cut, production levels in an effort to stimulate crude oil prices. For the proposal to work, OPEC officials said cooperation from non-member states is essential.

Early last month, Russian Oil Minister Alexander Novak issued a joint statement with his counterpart in Saudi Arabia calling for coordination on ways to address widespread volatility in oil prices.

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Russia's position on oil production has been fluid. Novak himself said it wasn't critical to make a formal arrangement to steer prices as the market would take care of itself.

Rosneft said its own oil production could increase by up to 20 percent next year.

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