Barrel by “freezing”: the oil market in questions and answers

Talks about “freezing” of oil production at the level of January 2016-exporting countries may be completed on 1 March. As stated by Minister of energy Alexander Novak, the country has already supported the freezing of oil production”, exports 75% of the total volume of this energy source, and this is enough to negotiate.

That may change in the oil market in case of implementation of the decision on “freezing”, that is Venezuela has already called “historical”, and about the position of exporters in a special material.

The level of production in January 2016

According to the February report of OPEC production outside the cartel countries in January 2016 increased by 131 thousand barrels/day – up to 32,33 million barrels/day.

Oil production in Russia in January, according to preliminary estimates, amounted to $ 10,878 million barrels/day.

What are the risks of the countries – exporters of oil

  • The country – oil producers are in no hurry to cut production, fearing a loss of market share. Although this measure helped to stabilize oil prices, the demand for which exceeds supply by 1.5 million barrels a day.
  • To freeze production levels for January will not affect the economies of exporting countries, whose production of oil at historical highs, experts say. We are talking about Saudi Arabia, Russia and Venezuela and Qatar.
  • However, for those countries that were going to increase production (Iraq and Iran), “freezing” can be crucial, as they will not be able to increase market share.

The positions of the parties

  • Venezuela, whose economy suffered from low oil prices, initiated the “freezing” of production and called the results of the negotiations “historic”.
  • Saudi Arabia has long refused to reduce oil production, thus trying not to let on the market of shale projects. Mining is a very specific “slate” makes uneconomic at low oil prices. However, Riyadh has agreed to the proposal to “freeze” prey
  • Russia explained that the decision to stabilize the production, not on its reduction is linked with the peculiarities of oil production in the country. In case of reduction of oil production, Novak said, have to preserve the well which in the present climate then not rekonstruiruet.
  • The UAE supported the initiative, calling current prices “unacceptable.”
  • Iran reacted to constructive proposals on “frozen” production, but a willingness to join them is not yet expressed. Representatives of Tehran called the proposal “illogical”, since the country has long been under the sanctions, while others have increased production.
  • Iraq made a statement about the readiness to “freeze” the oil production.
  • Advice on “freezing” of oil production will take place with Norway and Mexico.

Can countries to violate the agreement

  • In the Ministry of energy of Russia consider that to violate the agreement by “freezing” the oil production will be difficult. The market is relatively clear and transparent to all players, deception is easily revealed, said the Ministry.
  • In Sberbank CIB indicate that the inclusion of compliance or non-compliance with the quota and liabilities is an extremely complex thing. The error in oil production is millions of tons of oil per year, explained in the investment companies.

Will the “freeze” to stabilize prices?

  • The effect of “freezing” the level of oil production will be short-term without the participation in the negotiations the USA, Norway, Mexico and Brazil, analysts say.
  • In Sberbank CIB noted that in case of realization of the price of energy commodities will increase by $5-10 per barrel, the production in the United States will increase and the price of oil will collapse again.
  • Russian authorities expect that the measure will allow to keep the market.

The consequences of low prices

  • According to a study by the Center for energy studies of rice University, the fall in world oil prices has reduced the extraction of raw materials from shale rock and reducing investment in developing new deposits in the United States.
  • In Deloitte consider that about one third of oil companies in the world run the risk of bankruptcy in the current year.
  • As for Russia, according to experts, low energy prices are risks weakening of the ruble and weak economic growth.

What is the price of oil is fair

  • The price of oil at $50 per barrel would satisfy in the long run both consumers and exporters, said the Ministry of energy of the Russian Federation. However, Russian Deputy Prime Minister Arkady Dvorkovich believes the fair price of oil at $60-70 per barrel.
  • Venezuela believes that oil should cost at least $70.
  • In the summer of 2015 Iraq called fair oil price of $75-80 per barrel.
  • To “collapse” in the oil market most of the countries – OPEC members believed that the fair price of oil is at around $100 per barrel.

Negotiations on “frozen”

16 February in the Qatari capital Doha, the Saudi Arabia, Qatar, Venezuela, included in OPEC and Russian energy Minister Alexander Novak expressed the readiness to save, on average, in 2016 oil production at the level of January of the current year, if other countries will join this initiative.

On 17 February in Tehran passed negotiations of Ministers of oil of Iran, Venezuela, Iraq and Qatar. They also discussed the possibility of freezing the level of oil production. Following the talks, the Iranian oil Minister said that the country would support any initiative to improve the situation with oil prices.

Consultations on stabilization of oil production at the level of January 2016 will be held in Mexico and Norway.