President of Russia Vladimir Putin: Good afternoon, colleagues,
Judging by your reaction, everyone can see and hear each other. Welcome, once again.
We are working hard to ensure the safety of our people, to guarantee their health, to facilitate the failsafe operation of the healthcare system and to be prepared to take on the challenges brought on by the coronavirus infection.
But life goes on, and I said this in my latest address. I said we must do everything we can to ensure sustainability and, what’s important, the development of the Russian economy.
So, today we will deal with an issue that is very important to the world economy and that is vital to our economy. We will discuss the situation in global energy markets and what should be done to ensure the unconditional development of the energy industry in Russia.
As you know, generally the situation in global energy markets remains complicated. The coronavirus epidemic has affected the entire global economy, thereby reducing consumer demand for energy, especially in transport, industry and other sectors.
This situation is negatively effecting the financial and economic sustainability of the oil industry all over the world. Moreover, it is undermining investment programmes and may also affect employment. There are also other grounds for concern. Needless to say, all this will trigger high technological and even environmental risks. We should not forget about this, either.
It is also clear that having faced such system-wide problems, the global oil industry could be short of oil in the future when demand picks up. And this will happen, demand will inevitably recover, and in this situation, and you know this better than anyone, the industry will run into an acute shortage of oil, a serious shortage of resources, and later, of oil with all the ensuing negative consequences for the global economy. This is possible also because oil prices could shoot up. So, it is in our common interests, and I mean common interests, to avoid this scenario.
As you know, in early March Russia suggested extending the OPEC+ deal. Unfortunately, the situation began to develop under a different scenario.
I would like to emphasise that Russia has always favoured long-term stability in the oil market and consideration for the interests of both producers and consumers. We have never tried to inflate prices, but we have also wanted to avoid very low prices. This is easy to understand: our budget is based on an oil price of $42 per barrel and we are quite comfortable around this figure. I believe this is also very important for consumers. In general, all this implies an effective supply and demand balance with predictable and economically substantiated prices. This is what we have always striven for.
You know we maintain close contact with our partners in Saudi Arabia. And recently, I spoke over the telephone with the President of the United States. We are all concerned about the situation. We are all interested in joint, and let me emphasise, well-coordinated, actions for ensuring the long-term stability of the market.
In this respect, I would like to emphasise that Russia deems it necessary to pool efforts. As I said, we did not initiate the breakup of the OPEC+ deal. We are always ready to reach an agreement with our partners, in the OPEC+ format, and we are prepared to cooperate with the United States on this issue.
I consider it necessary to pool our efforts to balance the market and reduce production as a result of these concerted and well-coordinated efforts.
Based on tentative estimates, I believe the reduction should be about 10 million barrels per day, more or less. We are meeting today to discuss these issues.
Of course, all this should proceed in the manner of a partnership. And I believe that when I talk about partner interaction, everybody, including our partners, understands that this is about cutting production to the pre-crisis level, meaning we are taking about production at the level of the first quarter this year.
We will study and analyse the situation. Again, our key objective is the long-term stability of the market for the benefit of both producers and consumers. And, of course, to ensure the stability and further development of the Russian oil industry, the Russian oil and energy industry as the most important sector of the national economy.
I have brought you in to discuss all these questions and ask for your advice on what actions we should take and how we should hold consultations with our partners to work out a concerted approach.
I want to give the floor to the Energy Minister. Mr Novak, please, take the floor. I wanted to hear your opinion first, today. Welcome.
Minister of Energy Alexander Novak: Thank you very much.
Mr President, colleagues,
If I may, some words about the current market situation. As you noted, Mr President, it is evident that the global economy is going through a very volatile period and this directly affects the oil market.
Currently, oil is being traded at $25 to $30 per barrel. But volatility is high: up and down, every day. Actually, we see that price fluctuations have been about 10 percent or more. Since the beginning of the year, the nosedive has been almost 60 percent.
What factors have the greatest impact on the market today? The first and most important factor is the worldwide spread of the coronavirus pandemic and the governments’ efforts to contain the virus. This has led to a sharp decline in economic activity, limited movement of citizens, and a reduced demand for oil and oil products.
Currently, the decline in demand, as you have already noted, Mr President, is about 10–15 million barrels per day. And, according to experts, the demand may drop to 15–20 million barrels per day in the next few weeks. This is approximately 20 percent of the world's total production.
Currently, the market actually lacks an understanding of the possible bottom, and this is one of the main causes of the price drop. There has never been such a sharp and large-scale decline in demand.
The most acute situation is in the European Union countries, which consume 18 percent of the global oil market, and the United States of America with about 20 percent of the global consumption.
We can see a drop in demand of 30 to 70 percent at petrol stations in different countries. As you know, about 60 percent of all oil consumption in the world is connected with transport. We can also see a drop in demand for air travel, totalling 60 percent worldwide, that is, the loss in kerosene demand alone is about four to five million barrels per day.
One more additional factor, you also mentioned it, Mr President, is the unilateral decision of certain countries to overstock the market.
As you noted, on March 6 in Vienna, Russia proposed to extend the restrictions in force at that time on production by the OPEC+ member countries. We proposed to extend them for at least a quarter or a month to assess the current situation, and Russia did not initiate termination of the agreement. Unfortunately, our partners from Saudi Arabia did not agree to extend the current deal on the current conditions. In fact, they withdrew from the agreement and announced significant additional discounts on their oil, as well as plans for a sharp increase in production.
Amid the sharp drop in demand, which I mentioned earlier, this also caused oil prices to fall and continues to negatively affect the market.
The situation is currently as follows: overproduction, or unneeded oil due to lower demand, is now being moved to storage, either surface storage or oil tankers. According to estimates, oil can be moved to storage for another month and a half or two months, for record-high reserves.
When total over-storage occurs, the industry can encounter unpredictable consequences, including even more significant price drops.
Under the circumstances, of course, a decision is needed on coordinated actions to cut oil production in order to restore stability in the industry. You said this in your opening remarks. It is critical that the major producers take part in these efforts including Russia, Saudi Arabia, the United States and other countries, both OPEC members and others.
The key partners in balancing the market should be producers like the United States. I would like to specifically note that these actions should meet the interests of both producers and consumers unless there is a price hike after possible shortages.
Mr President, I agree with your assessment to cut oil production by about 10 million barrels a day. Production must be cut for several months with a subsequent increase in production as demand recovers.
A conference call with the OPEC+ ministers is tentatively scheduled for April 6. We will continue talking with our partners within the Cooperation Charter signed last year in order to reach an agreement on stabilising the global energy market.
I would also like to emphasise, in conclusion, that even under these difficult conditions fuel and energy companies are continuing to operate at full capacity. They are maintaining production schedules, and meeting domestic demand for oil products. We are monitoring the situation together and are doing all we can to ensure the stable performance by these companies in this challenging environment.
Vladimir Putin: If I understood you correctly – in fact, what you just said is fairly obvious. First, the reasons for the drop in prices and production were primarily due to the coronavirus, of course. It caused the decline in production, decline in demand – in transport, industry and so on. This is the first point.
The second reason for the price drop is the withdrawal of our Saudi partners from the OPEC+ deal, increase in their production volumes and the announcement they made at the same time that they are ready to discount oil prices.
All this is understandable because it’s apparently related to attempts by our Saudi partners to eliminate competitors that are producing so-called shale oil. To do this, it is necessary to get the price below $40 per barrel. In this respect, they are certainly reaching their goal to a certain extent. But this is what we do not need. We have never set such a goal because, as I said, our budget is based on about $40 per barrel.
That said, we must certainly consider the interests of all of our partners, all of them. This is the only way we will be able to achieve a fair agreement on balancing the market.
We are at the beginning of our conversation today but I would like to ask you, Mr Novak, to consider all these circumstances and to strive, let me repeat, for a well-balanced decision with considerations for the interests of all our partners when you talk with your colleagues from other countries – on Monday you said?