Russia Is Said to Seek Full Cuts Rollback for Most of OPEC+

(Bloomberg) -- Russia plans to propose that OPEC and its allies be allowed to return production to October 2016 levels, rolling back most but not all of their output cuts within three months, according to a person familiar with Moscow's thinking.

All the nations would proportionally share out a 1.8 million barrel-a-day increase to their output limit starting as soon as July, the person said, asking not to be identified because the information isn't public. The actual boost in supply to the market would be less than that because some states, notably Venezuela, Angola and Mexico, aren't able to increase, the person said.

Russia and Saudi Arabia, leaders of the group of 24 producers, already suggested boosting output to stop prices going any higher and hurting oil demand. Moscow's new proposal would go further, effectively ending the cuts for any country that has the ability to pump more crude. Such a move would have to be agreed by other members, several of whom have already come out in opposition.

The plan could be the first of many proposals and counter-proposals from members of the group, subject to change during negotiations. Given the backing of the two largest producers participating in the accord, an output increase “looks inevitable” Citigroup Inc. analysts led by Ed Morse said in a report on Tuesday.

The group's Vienna meeting next week would be a “crunch time” for OPEC, Warren Patterson, a commodities strategist at ING Groep NV, said in an emailed note Wednesday. “We would not rule out a scenario where Russia decides to exit the deal altogether” if no consensus is reached, he said.

World Cup

Russia and Saudi Arabia are set to discuss oil policy on Thursday as teams from the two nations meet in the opening match of the soccer World Cup in Moscow. President Vladimir Putin will host Saudi Crown Prince Mohammed Bin Salman, while energy ministers Alexander Novak and Khalid Al-Falih will also meet.

Putin and the crown prince will have a talk on the OPEC+ deal and the oil market situation, yet pulling out of the accord isn't something they plan to discuss, Kremlin spokesman Dmitry Peskov said Wednesday.

The Organization of Petroleum Exporting Countries and several non-members agreed in late 2016 to curb output by 1.8 million barrels a day in order to eliminate a supply glut that was weighing on prices. For most countries, that reduction was relative to their October 2016 production.

Cutting Deeper

Many nations have gone further than their pledged cuts. Saudi Arabia said it was cutting deeper to lead by example. Others, notably Venezuela, have experienced involuntary declines in production due to problems in their oil industries. In April, the group's total reduction added up to almost 2.5 million barrels a day, according to the International Energy Agency.

See also: IEA Says Iran, Venezuela Oil Output Could Slump by Almost 30%

Because the cuts have gone deeper than intended, overall supply from the group would still be about 1 million barrels a day below the pre-cuts levels even after the 1.8 million-barrel quota increase, the person said.

OPEC will probably overcome internal disputes to agree on a production increase next week, a Bloomberg survey shows. ING sees a possible expansion in the group's supply of between 800,000 and 1 million barrels a day this year. Citi predicted a smaller gain of about 500,000 barrels a day.

Russia boosted its crude production to the highest in 14 months in the first week of June as some companies breached their caps ahead of Vienna talks, a person with knowledge of the matter said Monday.

Moscow believes the new arrangement it proposes would provide stability for the oil market through a period of high demand during the northern hemisphere summer, the person said. The country would also support keeping the alliance between OPEC and other producers into 2019 -- either with or without new quotas depending on the requirements of the market, the person said.

--With assistance from Ilya Arkhipov.

To contact the reporter on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Dylan Griffiths, John Deane

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