Following is the transcript of a CNBC interview with Russia's Minister of Energy, Alexander Novak. The interview was broadcast on CNBC on 5 October 2017.
All references must be sourced to CNBC.
Interviewed by Geoff Cutmore, Anchor, CNBC.
Geoff Cutmore: So Minister thank you very much for joining us. What I'd like to start off with asking you is, are you happy with the way the oil market is progressing on the back of the various agreements that have been made with OPEC?
Alexander Novak: We would say that we are more than pleased. We believe that everything is going in accordance with the scenarios that we looked at and forecast and of course we are pleased that the market is balancing out and that prices are stabilising in the range set by the producer countries and consumer countries. And probably definitely... We can say that we are genuinely satisfied with the current agreement and the way the countries are acting. We are satisfied that we are implementing the agreement in accordance with our promises and our companies that are voluntarily taking part in all this are also fulfilling their obligations. Therefore we are satisfied that everything is going according to plan. I would also like to add that of course we are seeing that sometimes the market is affected by force-majeure circumstances, such as the higher than expected resumption of production in Libya and Nigeria for example. At the same time we are seeing a certain amount of stagnation in the growth of production in the USA. Although many are saying that it will start growing again very quickly in the summer period. But if you are talking globally, as a whole, taking into account all the pluses and minuses things have turned out in accordance with the forecasts that we and other countries have been planning.
Geoff Cutmore: The President appeared to suggest today that there is a possibility of a deal extension running through March 2018. Are you at the Ministry also thinking as you run into the November meeting for OPEC that you would be happy to seal that extension through March 2018? How do you feel about that?
Alexander Novak: Indeed, as the President said when he spoke at the Russian Energy Week. This option of extending the agreement exists and is possible. But he also said in his speech that we must carefully study and monitor the market and assess how the market balances out in the future in order to make a balanced and weighted decision about whether to extend the agreement or not. Within the framework of our discussions with OPEC and non-OPEC countries, we are starting from this position because today there are another six months until the agreement ends and events could develop in a number of different ways. Therefore, we need to monitor and be ready to take any decision that might be directed at stabilising the market.
Geoff Cutmore: Are you saying then that this is not the most likely outcome as we move towards the rest of the year?
Alexander Novak: We are only saying that we will need to see what the market will be like as we get closer to the end of the agreement.
I would also like to ask a question myself. Do you think it would be professional to have conversations six months before the deal ends categorically stating yes, we will extend the deal or on the contrary no, we will not be extending it? You would probably think that this would not be very professional.
Geoff Cutmore: Fortunately, I'm not the Oil Minister, the Minister for Oil & Gas for Russia so I don't need to make that decision. But let me ask you, you have been keen I think to see very accurate monitoring and surety of compliance with the current agreement. Would it be a pre-condition for you that before your willingness to sign up to anything new you want to improve the regime for monitoring and compliance? The OPEC Secretary General spoke about changing the current regime if there were members and non-members who wanted that. Would that be a pre-condition you think for further extension?
Alexander Novak: I think that what the Secretary General was referring to was the additional indicators that are being discussed and which we would like to monitor, are indicators associated with oil and oil product exports and likewise the consumption of energy products in various countries and the inventories, the inventories in tankers, in oil storage and oil product storage facilities. Yes, we aren't opposed to them, we support any improvement in any indicator quality that will allow us to better assess the state of the market. With regards the first part of your question, we believe that perhaps for the first time in its history OPEC has succeeded in reaching a very high level of implementing an agreement, at a level of almost 100 percent. And that is an impressive figure, we are very pleased with this figure. Although, as you understand within OPEC there are countries that are outperforming and those that are under-fulfilling their commitments. It's just that we believe that if everyone had implemented their commitments 100 percent the deal would have been even more effective and fairer for the parties to the deal. As a matter of fact I can say according to the results for August for the first time the Non-OPEC countries reduced production more than the OPEC countries and posted figures of 116 percent on the planned reduction figures. And Russia is also outperforming its commitments we committed ourselves to a planned reduction of 300 thousand barrels down on the figures for October last year. In August, our reduction came to approximately 346 thousand barrels a day and in September we produced similar figures. A reduction of approximately 15 percent more than was forecast.
Geoff Cutmore: So just to paraphrase the Saudi Oil Minister has said this year you don't feel there are other countries that are getting a free ride on the back of the cutbacks you are making?
Alexander Novak: No, without a doubt we are seeing the statistics and we see which countries that are not performing to the indicators. But as I said, as a whole we are satisfied that OPEC is complying 100 percent. But there are some countries that are making greater reductions in order to compensate for other countries that are underperforming. And of course we also think that this is not entirely fair and we are calling for each country to implement its agreements fully. But that is probably more of a matter for OPEC. In this instance we are speaking out as a participant country to the agreement that is calling on all countries to implement the agreement.
Geoff Cutmore: Do you think the market has structurally changed now and that a proper balance is within sights or is there still too much oil around?
Alexander Novak: Well, as far as the figures are concerned, at the beginning of the deal we had surpluses of approximately 340 million barrels in comparison with the five year average. Now, according to the figures after eight months this surplus has been reduced by half to around 170 million barrels. So, of course, the situation is a lot more healthy than it was at the end of last year. And moving forwards we will be looking at the dynamics for reducing this surplus.
Geoff Cutmore: So if you feel there's been a structural shift, can the headline WTI and Brent prices now trade in a much higher band, have they found a new permanent higher range?
Alexander Novak: I don't want to make any guesses or talk about prices because prices are not only affected by supply and demand, although that is an important constituent factor. But prices are influenced by the market, speculative factors, the relation of the dollar to other currencies, which we can't influence in terms of production. Therefore, I think the forecast that I made of a price of between 50-60 dollars, would be an optimum one and if the price will be in this range we believe that would be a good thing.
Geoff Cutmore: And what advice would you give to an oil trader who wants to go short oil in the fourth quarter of this year because they believe maybe you or the Saudis will waver on this relationship if you see the price fall below $50?
Alexander Novak: Well, firstly I don't have the right to advise anyone on what is going to happen on the market. I think those market players who carry out these sorts of operations know a lot better the situation on the market than the Russian energy minister or the minster of any other countries within or outside OPEC that are party to the agreement and are much better able to make forecasts having analysed the multitude of different factors involved. Therefore, we'll leave them to make their own decisions.
Geoff Cutmore: Let me ask you about the perception from Washington. They see what's going on here. They see you sitting next to the Saudi Oil Minister and they see the President sitting next to King Salman and perhaps they start to get worried there is a conspiracy here to damage seriously the shale industry in the United States or to stop America from extending its influence into the energy markets around the world. What would you say to that criticism that may emanate from Washington?
Alexander Novak: You asking me to think on behalf of the USA... I can't think on their behalf... We can only think for ourselves and we are building relations with countries with which we have mutual interests on the development of energy projects, these include Saudi Arabia, Iran, Turkey and many other countries in the Asian-Pacific region. And in this instance, we are discussing the implementation of joint mutually profitable projects.
Geoff Cutmore: I'm not asking you to speak on behalf of the Americans I'm just asking you to comment on what that perception may look like and do those Americans have any reason to worry? Are you trying to kill the US shale industry?
Alexander Novak: I have already answered this question. If we were trying to kill off shale production we would probably not have reduced our production when prices were low and shale prices would have been further hurt. On the contrary we have helped shale production to develop by reducing our own production and raising prices that will allow for more investment, including investment in shale production. We believe that shale production is one of the ways of producing oil and gas as well with established technology that is used throughout the world. Therefore, the question of competition from this source of energy has been established and will be used until the satisfactory resolution for the growing demand for oil and oil products has been found. At the same time, we have currently seen for several months, shale production is not growing as much as previously and the number rigs is not growing. Therefore, there probably isn't much of a prospect of a sharp rise in shale production while we have low prices. On the contrary, we have to implement projects on the world market that will meet the growing demand.