Rosneft head talks about "phantom barrels" in the oil market that negate OPEC+ efforts

The stockpiling of reserves by both Western and Middle Eastern companies, as well as the build-up of production capacity, may be an expectation of major market changes, Rosneft Chief Executive Officer Igor Sechin said in his report at the Energy Panel at the 27th St. Petersburg International Economic Forum.

“The stockpiling of reserves by both Western and Middle Eastern companies that we observe may be an expectation of major market changes. The presence of such phantom barrels that can have a large-scale impact on the market will offset the impact of the voluntary production cuts undertaken by major OPEC members. This is also shown by market quotations, which went down after the recent decision by the ministers of the member countries”, said the head of Rosneft.

He said that the Gulf countries are also actively ramping up spare production capacity, streamlining sales channels and investing in assets in consumer countries. At that, the four key OPEC members - Saudi Arabia, UAE, Kuwait and Iraq - already have significant spare production capacity of around 5.6 million bpd, which is equivalent to 13% of current OPEC+ production.

“Some time ago these countries announced their plans to further increase their capacity. In expert estimates by 2027 their combined spare capacity will increase by almost 2 million bpd”, added the Rosneft’s head.

Moreover, Igor Sechin believes that the volatility and uncertainty of the energy market may increase associated with the upcoming presidential elections in the United States, where election sentiment depends, among other things, on the increase in the cost of a gallon of gasoline. “Thus, an average price - $3.6/gallon, and in some states such as California - $5.4/gallon”, Igor Sechin said.

According to his words, Regulation of the industry can change if a certain candidate wins the upcoming elections in the US. “The emerging risks suggest that there may be a Plan B in case of a special period for each major participant”, said the Company head.

Sechin also noted that the US majors are carrying out merger deals with other producers and increasing their own production capacity in order to secure higher profits and dividends. Moreover, production growth remains behind the scenes, as it requires capital expenditures that must be supported by high prices.

“So, Exxon is completing its merger with Pioneer, Chevron is closing its merger with Hess, OPEC+ has already announced its plans for a gradual return of volumes starting in September, and Aramco is conducting its secondary public offering. I am confident that Aramco's secondary public offering will be successful, attractive and efficient, and will be a historic event in the global oil industry”, said Igor Sechin.

The head of Rosneft believes that the budgets of most OPEC+ member countries are able to withstand a possible drop in oil prices, which could be partially or fully offset by an increase in supply.

“In theory, for the Russian oil industry, a price decrease can mean the possibility of removing all restrictions related to price cap, while the revenue part of the approved federal budget is based on the crude price of USD 60/bbl. In these conditions, the ability of OPEC+ to promptly response to new emerging factors of influence will be of fundamental importance for stabilizing the world markets”, summarized the head of Rosneft.

Information & Advertising Department
Rosneft
June 8, 2024