Reduction in words: how OPEC’s decision will affect oil prices and the ruble

Later Wednesday evening, September 28, at the International energy forum (IEF) representatives of the OPEC for the first time in eight years, decided to reduce oil production. The volume of production will be reduced from the current 33.2 million barrels per day to 32.5-33 million barrels. “The income of countries-exporters of oil and oil companies dramatically reduced, increasing the burden on their budgets and hampering economic growth,” explained OPEC’s unexpected decision.

According to Bloomberg, in early 2008, before the financial crisis, the volume of oil production by countries outside of OPEC was approximately the same level as now, and 33.4 million barrels a day. And one year later, by March 2009, it fell to 27.7 million barrels per day. By this time the price of Brent crude oil, only started to grow after the collapse in December 2008, reached $52 per barrel.

What a deal

The decline in production will be quite serious: 750 thousand barrels per day (the highest possible volume reduction) is more than half of the projected in the year 2016 the growth in global demand for oil (according to OPEC forecasts, demand growth in 2016 will amount to 1.23 million barrels). However, this is less than in 2008, when production decreased by 2.2 million barrels per day — it was the largest reduction in the history of the cartel.

The problem is that while the results of the talks in Algiers, the agreement is preliminary in nature. The OPEC members will need to work out the size reduction of extraction for each of the 14 countries. This should happen at the next OPEC meeting in November. There will be clear when the agreement will come into force and, according to the head of the Ministry of oil of Venezuela, Eulochio del Pino, during what period of time would act.

What can prevent OPEC

The main issue what will be the level of production of Iran. Previously it was the differences between Saudi Arabia and Iran have led to the failure of negotiations on the freezing of production. The representatives of Tehran previously had consistently stated that it will not reduce or freeze production of oil as long as it will not return to pre-sanctions levels of 4 million barrels. a day (now — 3.6 million Barr.).

Head of energy ministries of Iran, Saudi Arabia and other OPEC members before the talks said that while it is only informal talks. The last time the country tried to reach an agreement to freeze production in April in the Qatari capital Doha — it was planned that the agreement will be “gentlemanly” character. For the violation was not planned to impose any sanctions.

Optional quota

Despite the fact that OPEC in 2011 imposed a quota on the total oil production in the cartel (30 million barrels per day) and since then it has not changed, de facto, the quota is not respected (according to the August according to OPEC, daily production was of 33.24 million barrels). Russia agreed with OPEC to reduce output twice, in 1999 and 2001, but both times, oil production in Russia by the end of the year, not only did not decline, but grew (about 300 thousand barrels per day in both cases).

What will Russia do

The question of which countries outside of the cartel will participate in the production cuts, will be decided by the November OPEC meeting. The Russian Minister of energy Alexander Novak said during IEF reporters that Russia was discussing the options of freezing” and rated them as “acceptable”. According to ING, the oil production of Russia has reached record levels of 11.1 million barrels per day in September, compared with 10.7 million barrels per day in August.

In support of frosts in early September, was given by the President Vladimir Putin — in an interview with Bloomberg, he said that such a move would be right for the world market. Putin also said that Russia would support the freezing of oil production, allowing Iran to compensate for its position.

On Thursday, Novak in interview to TV channel “Russia 24” stated that Russia intends to maintain its minimum output current level. “Everything will depend on the production plans of companies and macroeconomics. But we orientirueshsya on maintaining production volumes at current levels, is the basic principles that were previously considered”, — said Novak. According to ING, the oil production of Russia has reached record levels of 11.1 million barrels per day in September, compared with 10.7 million barrels per day in August.

Why increased oil prices

Markets believe in the agreement on the freezing of production, despite the fact that about any specifics yet, there is no question. After news of the compromise within OPEC, Brent crude rose from $45,77 to $49,06 for barrel, WTI — from $44,41 up to $47.39 per. Later, the prices of Brent and WTI slightly adjusted to $48,45 and $46,99, respectively, as of 14:50 Moscow time.

Now the prices for oil grow in the absence of fundamental reasons, said an analyst at Nordea Bank Denis Davydov. Analyst UK “the alpha-the Capital” Andrey Shenk believes that the market reaction is not as strong as it could be: “We’ve been in the position that now the news from the OPEC will not render influence on quotations”.

What would happen to them

When the markets see that the agreement will be weaker, the situation will be played back. The analysts of Goldman Sachs have predicted the rise in oil prices at $7-10 by 2017, thanks to the agreement. Davydov believes that it is too early to talk about the impact of the meeting in Algeria on fundamental factors of pricing: the volume of supply remains at levels close to the maximum, and the demand is not growing. As soon as oil prices begin to approach the level of more than $50 per barrel, the market remember the enormous reserves of shale oil in the US, which puts pressure on prices, reminiscent of Davydov. Director, Moscow oil & gas center EY Denis Borisov says that the long-term dynamics of oil prices will be determined by the behavior of American oil companies. They are the third most important player on the market, in addition to OPEC and countries that are not members of the cartel (including Russia).

Will the banks to change their forecasts

The majority of surveyed analysts did not change their forecasts of oil prices in connection with the decision of OPEC. “This decision is a positive and no more” — the analyst of ROSBANK Eugene Koshelev. According to the Bank, at the end of the year, the oil price will be around $50 per barrel, and on the horizon of 2-3 years the price will be around $55-70. Chief analyst at Nordea Bank Olga Lapshin said that the decision means only that the countries have agreed to negotiate in November. “Lacks many important details — what are quotas and how they are distributed across countries. The solution looks nedovolnym. The reaction that we see, confirms this opinion,” she said.

For this reason, Nordea did not change forecasts oil prices to $46 per barrel at the end of 2016. According to forecasts by ING, the price of Brent crude oil will gradually return to levels observed prior to the meeting, and at the end of the year will fall to $42 per barrel. “Until 30 November, oil prices will fluctuate in the usual range of $45-49 per barrel, the dollar — 64-64,5 To OPEC meeting in Vienna we will not revise the forecasts neither on oil nor on the exchange rate,” adds the analyst of Danske Bank Sergey miklashevskii.

What will happen to the ruble

Maintaining benchmarks in oil prices means that the forecasts for the exchange rate of the national currency remain the same. According to the interviewed experts, the informal status of decisions and the uncertainty of the distribution of quotas is not allowed to make long-term forecasts. According to estimates Nordea, the ruble to the end of the year may weaken against the dollar, which will cost 65 rubles For dollar, our forecast has not changed and corresponds to 65 rubles per dollar,” said Koshelev of ROSBANK. The Bank predicts strengthening of the Russian currency in the first quarter of 2017, to 63 rubles per dollar.

According to the forecasts of the criminal code “Alfa Capital”, a dollar until the end of the year will remain at 63-66 RUB Alfa-Bank maintains its forecasts. “I am guided by the Outlook on the fundamental course for the next year and a half: when the price of oil at $50 it will be about 70 RUB fluctuations in the price of oil within days and weeks not affect this parameter,” — said the chief economist of Alfa Bank Natalia Orlova. Chief economist “PF Capital” Evgenie Nadorshin believes that the dollar will be worth 70 rubles to the end of the year. “I think the Russian economy continues to move downward,” he said.