Moscow. September 29. Contrary to analysts ‘ predictions and opinions of experts, OPEC countries at an informal meeting in Algiers, unexpectedly for the market and, it seems, to themselves, were able to agree on reducing oil production from the current of 33.24 million barrels a day (estimate OPEC) to 32.5-33 million barrels per day. This decision has informal status – final, confirmed in writing agreements must be reached at the formal meeting of the cartel in November in Vienna.
Then decisions will be made about the production quota of the OPEC countries and established a timetable for the reduction. However, the fact of such informal agreements have literally set fire to the market. The cost of Brent crude jumped 6% to over $49 per barrel. And no wonder – the consensus on production cuts has been made by OPEC countries for the first time in eight years.
A surprise for the market
The OPEC decision to reduce production was for the world oil market a pleasant surprise. Energy Ministers of the OPEC countries have already met several times this year to negotiate a freeze of the production, but to reach consensus failed. Iran is going to increase production to pre-sanctions levels of 4 million barrels per day. Kuwait noted that will try to win a big share of the market, while oil prices are low. Saudi Arabia, on the one hand, insisted on the freezing of production and the other did not want to let their markets of Iran.
Экономика28 Sep 2016Алжир proposed OPEC to cut oil production at 796 thousand barrels per sodicity to read more
The altitude of the disagreements within the cartel has been meeting in Doha in April this year. The Minister of oil of Iran Bijan Zanganeh, wishing all good luck, it does not come. The Minister of energy of Saudi Arabia Ali al-Nuaimi because of the lack of Iran broke the OPEC negotiations, which lasted almost nearly 17 hours. This, by the way, cost him the post of Minister.
On the eve of the September meeting in Algeria Zanganeh and the new Minister of energy of Saudi Arabia Khalid al-falih assured journalists that the delegates are going to “consult all” and “exchange views.” To make decisions on the freezing of production, and especially its reduction, according to them, no one was going.
An informal meeting of OPEC has been about six hours and ended in Moscow when midnight came. However, the first results of the negotiations began to appear long before the meeting of OPEC Ministers. By the time of the conclusion of the meeting and the official announcement of the outcome of the meeting, the price of oil jumped to nearly $50 per barrel.
Oil so much that it no place to store
The reason for this unanimity in OPEC can be simple. Despite the active spring growth, oil prices this year and are unable to approach $50 a barrel. In August-September, they all stopped at $44-45 per barrel with the clear intention to go down. All the participants of OPEC noted that expected by the beginning of next year the balance of supply and demand in the oil market is delayed at best, at the end of 2017. “We expect that the market will find its equilibrium by the end of 2016 or early 2017, but now there is no certainty that it would happen so soon, we need to look at options for stabilizing the market”, – said before the meeting, the oil Minister of Qatar Mohammed al-Garden.
Against this background, said the OPEC Secretary General Muhammad ‘ Sanusi Barkindo, storage of oil were overcrowded. “Now there is no place for oil storage. The task of rebalancing is the reduction of oil reserves at least up to the secondary level for five years,” he said. According to the Secretary-General, now the reserves exceed this level by about 340 million barrels and account for more than 3 billion barrels. The purpose of rebalancing is to reduce the inventory of oil in storage.
According to the calculations of the Minister of oil of Venezuela, Eulochio del Pino, freezing oil, not to mention its reduction, will allow to remove from the market at least 1 million barrels per day and reduce stockpiles.
Who to cut, who to dovisit
What country, in what volume and when you start to cut production, will be discussed at the OPEC meeting in November. According to the documents on the last informal meeting, excerpts of which leads Bloomberg, Algeria has proposed that the OPEC to reduce the total volume of oil production at 796 thousand barrels per day (b/d) from the August level, i.e. from 33.4 million b/d to 32.4 million b/d. however, Saudi Arabia should lower production at 442 thousand b/d compared to August – up to 10,145 million b/d, Iraq, on 135 thousand b/d, Kuwait by 87 thousand b/d, the UAE – 155 thousand b/d.
Economy29 September 2016Для three OPEC countries have made exceptions in the restriction of output to netikette read more
But for Iran recommended a quota of 3.7 million b/d, which means increased production by 52 thousand b/d compared to the August level. Nigeria and Libya are exempted from the decrease in production, as both countries suffer from the effects of civil war and insurgency.
Whether these quotas are supported, while difficult to say. The Minister of energy of Saudi Arabia Khalid al-falih after the meeting noted that Iran, Libya and Nigeria, may be permitted to increase production to maximum reasonable levels.”
Iran, this approach is, apparently, quite satisfied. No wonder the Minister of petroleum of this country Zanganeh appeared the most conspicuous after the OPEC meeting. He strongly emphasized that OPEC’s decision is exceptional and historically significant. Thus, according to him, Iran itself stores plans to exit production of 4 million b/d, and the conquest of 12-13% share in the total production of OPEC.
Would the other oil-producing countries with the need to cut production, especially with rising oil prices and prerogatives for some participants of the cartel, is hard to say. It is not excluded that in November mutual agreement, reigned at an informal meeting in Algeria will result in a rigid antagonism and distrust each other.
A Pyrrhic victory
One of the most active participants in the negotiations to freeze production at the meeting in Algeria was Russia. In fact, the Ministry of energy promoted the idea of freezing the production since January and was very upset, when negotiations on this issue failed for the first time in the spring in Doha. In September, the Russian energy Ministry again revived the process of negotiations on the freezing of production and even signed with the Ministry of energy of Saudi Arabia joint statement on coordinated action to stabilize the oil market. According to Alexander Novak, the freezing of production “were the most effective method of stabilization of the market”, and freeze production at current levels – the “most advantageous” method of stabilization for Russia.
This approach is understandable. According to the energy Ministry, in September Russia became the historical maximum of daily oil extraction 11.09 million barrels, which allows the end of 2016 to beat another record for oil production in 544-544 million tons of oil.
But negotiate production cuts, Russia is not going to. At the beginning of the year, when the price of oil was at minimum levels of about $30 per barrel, the Russian energy Ministry has instructed oil companies to explore the possibility of reducing oil production. The conclusion was simple: the technical feasibility of reducing the production is in the warm season, however, the expediency of this step is questionable.
OPEC has already urged countries outside the cartel to join production cuts. To join or not – it is voluntary. But signed in early September a joint statement with Saudi Arabia to coordinate actions to stabilize the market could draw Russia into an unpleasant diplomatic game with the advent of the obligations of the parties to reduce oil production.