Rosneft Chairman of the Management Board Igor Sechin gave a speech at the opening of FT Commodities Global Summit in which he analyzed major trends and factors of global commodity markets development.

Igor Sechin noted that substantial excess of supply over demand is the major factor of oil prices decline and expressed the opinion that supply excess would be surmounted within two years. "Proficit will be eliminated during this period due to the growth of the global economy and consumption, depletion of the producing fields and temporary shutdown of complex and insufficiently effective projects - noted Rosneft Head. - Low prices phase cannot last long, at least by the major reason - current prices do not secure the complete cost cycle, i.e. they generate losses for the companies, that work at complex fields".

Rosneft Head also brought to notice the investments shortfall factor, which has the key role in the oil industry. "We see very substantial reduction of investment activities - for more than USD 250 bln already, and it will have long term implications - Sechin stated, - Oil and oil products demand is going up stably enough - by 1.3-1.8 mln bpd per year. It is possible that with moderate oil prices this growth will keep pace with at least additional 1.2 mln bpd annually and additional 6 mln bpd annually will be required by 2020 compared to 2015. Moreover there is annual capacity decline of no less than 3 mln bpd at the producing fields".

Rosneft Head also said that a number of large producing projects, including expensive ones, which had been started in the high prices period, currently demonstrate growth or stable production level. According to Igor Sechin it is explained by the "momentum of the investment process in the industry", however there will hardly be any new similar projects until prices stabilization, as cost indicators shall create substantial "safety cushion" which in investors opinion will "guarantee" their economic efficiency. Shale oil is a bright example, its production is going down despite tax preferences and financial support of American investors. Igor Sechin noted with a reference to the US Department of Energy, that potential of American shale oil production was limited and could not exceed 2-3 mln bpd even with much higher prices.

Igor Sechin noted that Russian oil industry representatives did not support excessively high prices, which were caused by weak dollar policy, promoted by US Federal Reserve. Change of this policy put serious pressure on oil prices. Igor Sechin summarized that oil contracts reference to US dollar was not the factor of oil market stabilization. It means that use of multi currency pricing at the oil markets and first of all in the regional transactions is becoming more and more important.

In his speech at the FT Commodities Global Summit Igor Sechin also noted that the current period was characterized by the reinforcement of trading role, which affected the market greatly by establishing vertically integrated systems (by participation in production, refining and even retail), investing to oil and oil products delivery and storage facilities. "Trading companies work both with physical volumes and with financial derivatives, establishing common platform that links the market members" - stated Rosneft Head.

In conclusion Igor Sechin noted that he did not agree with the opinion that commodity markets are facing the so-called "supercycle of low prices", which, according to the forecasts of some experts, could last 10-15 years. Rosneft Head thinks that "demand for additional production will recover within the three-four years period".

Welcome address of Rosneft Chairman of the Management Board Igor Sechin to the participants of the FT Commodities Global Summit

Presentation for the speech of Rosneft Chairman of the Management Board Igor Sechin at the opening of FT Commodities Global Summit

Rosneft Information Division,
April 12, 2016