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Russia energy minister sees options for OPEC deal, including production rise

Key Points
  • OPEC and its allies held their ministerial monitoring committee meeting, known as the JMMC, on Sunday in the Saudi Arabian city of Jeddah. 
  • Saudi Energy Minister Khalid al-Falih told reporters at the event that he was recommending "gently" driving oil inventories down. But he added that OPEC would not make hasty decisions about output ahead of a June meeting.
  • Russia has been vocal about raising production while OPEC's de-facto leader, Saudi Arabia, has been wary of a possible price crash that an output increase could cause.
VIDEO2:0402:04
Russian energy minister outlines what's next for OPEC and its allies

Russian Energy Minister Alexander Novak said there were different options available for OPEC and its oil-producing allies in the second half of 2019, including a possible raising of output.

The OPEC+ alliance held a ministerial monitoring committee meeting, known as the JMMC, on Sunday in the Saudi Arabian city of Jeddah. The producers agreed to continue monitoring the oil market and are set to meet again in late June to review their oil supply cut agreement.

"As far as our joint plan of action for the second half of the year. We are supportive of continuing our cooperation with our colleagues from other countries," Novak told CNBC's Dan Murphy in Jeddah, according to a translation.

"But this continuation could depend to various extents on how the situation unfolds by this time and what the forecasts for supply and demand will be on the market. If it turns out that there will be a shortfall in the market then we will be prepared to examine options linked with a possible increase in production," he said Sunday.

His comments come five months into a fresh round of production cuts from OPEC+. The deal is designed to stop inventories building up and weakening prices. Russia has been vocal about raising production while OPEC's de-facto leader, Saudi Arabia, has been wary of a possible price crash that an output increase could cause. The output cuts have helped oil prices to rise more than 30% so far this year.

VIDEO3:1603:16
Saudi energy minister: Everybody is vulnerable to acts of sabotage

Saudi Energy Minister Khalid al-Falih told reporters at the event that he was recommending "gently" driving oil inventories down. But he added that OPEC would not make hasty decisions about output ahead of the June meeting.

The Middle East-dominated group, alongside non-OPEC allies such as Russia, agreed to reduce output by 1.2 million barrels per day (b/d) for six months. OPEC's share was set at 800,000 b/d, to be delivered by 11 members — with Iran, Venezuela and Libya exempt from cuts.

The 2019 pact was a dramatic turnabout for OPEC and its allies, after the producer group had agreed to boost supplies in mid-2018. OPEC+ changed course after Brent crude futures tumbled from $86 a barrel in October, making them wary of a supply glut.

Russia Energy Minister Alexander Novak pictured at a joint press conference during the 173rd Ordinary Meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna, Austria on November 30, 2017.
Omar Marques | Anadolu Agency | Getty Images

Contaminated oil

Experts have signaled the oil market is currently tightening, with sanctions on Iran and Venezuela. In April, there was also a suspension along the major Druzhba pipeline with several European nations halting imports from Russia after contaminated supplies were found.

Novak has reportedly said the total damage from the contaminated oil would be less than $100 million. On Sunday, he told reporters that supplies to Poland via the pipeline would start again on Monday.

"We are carrying out full-scale work on the restoration of the operation of the oil pipeline system and the provision for our consumers of oil of a quality that meets the required content standards," he told CNBC.

"This work is underway with our partners and I think that in the near future we will have a result in terms of a normally functioning system."