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Novak: Opec-Plus Prioritizes Clarity, Consistency

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Russian Deputy Prime Minister Alexander Novak said Opec-plus had ignored recent calls from the US to ramp up oil production because the alliance wants to send clear and consistent signals to the market.

"We believe that it is more correct in the medium term to outline by how much we will grow production as demand increases," Novak said in an interview with Russian news organization RBC.

"Producers must understand beforehand the size of planned investments to provide for output growth," he continued. "We cannot have production going up and down," he added.

Novak also pointed out that global oil demand usually dips during the northern hemisphere's winter.

Opec-plus has been raising its oil output in monthly increments of 400,000 barrels per day since August. It is expected to keep doing so in 2022 as it reverses the big cuts it made in 2020 when the Covid-19 pandemic slashed demand.

Gasoline Prices

As Brent crude oil prices rose above $80 per barrel in October and November, the Biden administration responded to concerns about high gasoline prices in the US by urging Opec-plus to supply even more oil to the market.

The US and several other countries also announced plans to release oil from their strategic petroleum reserves to boost supply and lower prices.

Novak said he does not believe that the estimated 50 million-60 million barrels of additional oil that this could add to supply will have much impact in the grand scheme of things, although there could be a short-term effect.

Novak also wondered why the US — the world's biggest oil producer — had not called on its own producers to increase their output. "They deliberately limit their production. I think there is a contradiction in their actions," he said.

The deputy prime minister, who oversees Russian oil policy, declined to comment about the likely outcome of the next Opec-plus ministerial meeting on Jan. 4. However, another routine increase in output of 400,000 b/d is widely expected.

He does not expect the current surge in infections caused by the Omicron variant of the Covid-19 virus to erode demand for oil because new waves of the pandemic are not curtailing the movement of people to the same degree as earlier waves.

"Despite the continuing pandemic, oil consumption continues to grow ... the economy keeps recovering and growth will continue next year," he said.

The current Opec-plus deal expires in September of 2022 but Novak noted that the alliance's charter provides a basis for cooperation beyond that date.

Russia Raises Preferred Price

Novak said Russia would be comfortable with an oil price in a range of $65-$80/bbl in 2022.

The national budget would be balanced at $44.20/bbl in 2022, but plans for the country's socioeconomic development assume higher prices, he explained.

Russian officials have previously indicated that the country favors a price of $45-$65/bbl. However, Russia, like other countries, has experienced a surge in inflation, with prices currently rising at an annual rate of more than 8%.

Novak said there are currently no talks involving Russia and other members of the Gas Exporting Countries Forum about creating a "gas Opec."

He suggested that it would be "impossible" for top producers to regulate the global gas market until LNG accounted for at least 50% of supplies.

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