Javan (Iran): two oil giants of the world have converged in fight — how long to cut production?

Saudi Arabia intends as soon as possible to achieve the reduction of oil production on a global scale, as a continuation of current trends is causing enormous damage to stock prices is larger Sadouskaya company “Aramco”. This is one of the world’s largest oil producers recently lost 1.7% in value of its shares, which in turn resulted in the decrease of the index of all shares in Riyadh.

One of the consequences of outbreaks of coronavirus infection in China was almost complete paralysis of the global oil market. Because of this, many oil-producing countries, primarily Saudi Arabia, requires the continuation of declining oil production on a global level. But this position has both supporters and opponents.

In particular, Russia is one of the countries that has a dual position on the need to reduce oil production in the world. Russia and Saudi Arabia continue to make large-scale diplomatic efforts, and each country thinks of its own interests. According to a source in OPEC, Saudi Arabia is seeking the consent of the countries — other oil producers, the reduction of mass production by 500 thousand barrels a day, and, if possible, and twice as many. But not all think so. In particular, Russia, which was able to adapt its budget to lower the price of black gold in world markets, I do not agree with this proposal.

Statistics show that if current production decline in the OPEC+ will continue, it will lead to a drop in the production level of 600 thousand barrels per day in the first quarter and the second quarter this figure will add another million barrels of oil.

Saudi Arabia, however, are not very satisfied with such a pace, as she asks drumany global manufacturers, while the ongoing crisis the impact of coronavirus infection from China on the situation in the markets, to agree on further reduction of world oil demand. The delay in this process, Saudi experts say, may be very expensive to do.

Almost all the countries in OPEC, including Venezuela and Iran to agree with proposals for further reductions in supply, however, Russia is still silent about its final position. Riyadh believes that the impact of the spread of coronavirus infection of the PRC the demand for oil much more than it affected the situation with other viral infections, atypical pneumonia SARS in 2002 and 2003, as the current impact of China on the situation on world markets and the global economy generally a lot more than a couple of decades ago.

the ContextOil fieldDer Standard: oil is cheaper, but Russia does not reduce добычуDer Standard14.02.2020 Atlantico: how Russia is trying to confront Saudi Arabia in ОПЕКAtlantico11.02.2020 oil Price in the current year decreased by $ 11 per barrel and is now $ 54. This fall in prices, which are linked to the spread of a new type of pneumonia from China, leading to death, according to official statistics, more than 1100 people, is a stern warning to countries whose economy depends on the situation with oil prices.

Saudi Arabia, the largest oil-producing country of OPEC, in the past always tried to control the process of oil production, achieving its bigger, its smaller volume, so prices are always kept satisfied with her level, but they are not always so fast to respond on the situation like at the moment.

While OPEC consistently criticized for the fact that the organization had not prevented the rapid increase in oil prices that has occurred, for example, in 2008. In those years, recall the price of crude oil “Brent” from-for fears of reduction of deliveries has reached $ 148 per barrel. But the organization also does not rapidly respond when in the midst of the global financial crisis, demand fell sharply and the price fell to near $ 30 per barrel.

Proponents of reducing oil production

currently, OPEC is no longer able to influence the situation with oil prices, as it was previously. Increased significantly, on the contrary, the share of Moscow and other countries in the formation of prices, as in the reduction of oil production. The technical Committee of OPEC last week proposed to reduce production by another 600 thousand barrels. The Ministry of oil of Venezuela and the state Corporation of oil of this country in the joint statement agreed on the proposal of the technical Committee to reduce production by 600 thousand barrels per day extra.

Iran’s oil Ministry announced last week a statement, which said that if the majority of OPEC countries, according to the proposal to cut production in such quantities, that the Islamic Republic of Iran, too, would not oppose. According to a source in one of the OPEC countries, the technical Committee proposed to extend the validity of the decision on production cuts until the end of 2020.

the Ministry of energy of Azerbaijan reported that the country would also support the proposal for the reduction of production for OPEC countries and their partners, if this step really necessary to balance the demand that is affected by the situation with the spread toranavirus in China.

energy Minister Parviz Shahbazov, in turn, said in an interview that Azerbaijan is likely to support this decision. Azerbaijan is not an OPEC country, but included in the group of OPEC countries+ created in 2016 and cooperating with OPEC in reducing production.

Azerbaijan, however, is not a country that has great influence in OPEC, but its position is likely to influence the final decision of Russia, as OPEC and the “OPEC+” usually take a joint decision.

According to Shahbazov, oil production in Azerbaijan during the past month amounted to 770 barrels per day, which, he said, corresponds to the commitments made under the agreement on the reduction of oil production.

the Research company JBC Energy wrote in its Memorandum that at different stages can have different results. A peculiar situation for the “OPEC+” is that the reduced supply has little effect on the overall level compared with purchasing who carry out oil refineries in the period from several days to several weeks. There is a greater risk that this group of countries will reduce production in larger quantities than necessary. According to company estimates, the demand for oil in 2020 will range at around 750 thousand barrels per day. This figure is comparable with what took place last year, and this demand can be considered low. In this regard, we note that oil production in Libya, another major oil-producing country, fell to $ 800 thousand barrels per day. And this decline had little impact on the overall situation.

According to the “Oil Price”, analysts from Commerce Bank also issued a Memorandum where it was reported that the Generalher favorable situation on the stock markets themselves the energy markets in the not so favorable position. And if you think the stock market has overcome the impact of the crisis with the coronavirus, according to some position even visible record figures, however, market concerns are still strong, because one China and its exports is too important for the oil market. If you carefully examine this situation, we can explain why news of the production cuts undertaken by the group of countries “OPEC+”, met a relatively lukewarm response in the markets.

on the other hand, Saudi Arabia intends to achieve the adoption of a decision on reducing production as soon as possible as the current situation may negatively affect the value of the shares of the company “Aramco”. This major oil producer has already lost more than one percent of the price that was the result of the General crisis of the stock price in Riyadh.

However, according to one of the senior managers of the Bank Al Mal Capital in Dubai, the shares of the company “Aramco”, showing very good performance in comparison with the price of crude oil: at the time, as the raw material price of “Brent” in the current year was down by 17 %, the shares of “Aramco” lost just over 6% of its value.

Vahid Hajipur, a regular contributor to

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