the Global oil market reeling again. At the upcoming summit of OPEC+ in the middle of June the members of the Alliance will determine whether it is time to lift the moratorium on oil production, or should wait on the restrictions. The views of the two major players in the market — Saudi Arabia and Russia risk again, as in March, when it broke the previous agreement, to be diametrically opposed.
Riyadh insists on maintaining existing production limits, as quotations of raw materials has not reached a stable position. Russia does not hurry to agree with this opinion, preferring to defer their final decision until just before voting on the summit.
Saudi Arabia, which six months ago, reluctantly agreed to moderate their production capacity, and now she actively promotes the reduction of production. At the next summit of OPEC+, according to Reuters, the Kingdom will insist on the extension of the terms of the Memorandum agreement at the end of April this year and able to halt the rapid decline in prices. Riyadh urgently need money in the first quarter, the profit of the mining concern, Aramco has fallen by 25%, the budget revenue of Saudi Arabia decreased by 22%, and its deficit exceeded $9 billion.
Offer Riyadh discussion in Moscow, however, to accede to the Saudis, our country is not in a hurry. According to investment strategist UK “Arikapital” Sergei Suverov, extension of the current terms of the agreement will ensure the continuation of the current quotations of “black gold” in the neighborhood of $35 per barrel. However, the Russian budget is based on $42-43 a barrel roll, so Moscow will have to find new incentives to increase oil prices.
the Previous negotiations of the world’s major oil producers within OPEC, which was held in late April and ended with the conclusion of the new agreement took several days. The parties have agreed to reduce production in may and July to 9.7 million barrels a day. From 1 July 2020, according to the agreed with all parties to the plan the amount of the reduction in production should be cut to 8 million barrels, and then to 6 million “barrels”.
experts believe that the upcoming OPEC meeting+ June 8-10 our country is to wage a fierce dispute not only because of the production quota, but to propose a new principle of agreement to limit production.
the fact that at the present time, the level of decline in oil production depends on total production volumes of raw materials of a state — the higher they are, the large volumes of production cuts will have to accept. The use of such models, according to suverova does not give a clear formula, which is true to calculate the specific amount each provider shall reduce��s production to keep the existing value. With almost the same size of production, the level of exports to Saudi Arabia almost twice above, than in Russia. This is understandable: domestic consumption of energy resources in the middle East – is relatively small, which enables to maintain a high level of exports.
experts state that Moscow and Riyadh are now different position. During the economic stagnation that was observed in early may, the Middle East has managed to accumulate significant reserves of raw materials. Now they can easily reduce the physical oil and sell on the export of raw materials made in advance. Russian companies this is not possible: their revenues fell sharply along with the price of oil and to compensate them they can, just increasing production.
“Russia is firmly determined to begin to increase oil production, as stipulated in the April agreement. As part of the transaction, our country planned to increase production by 500 thousand barrels a day since July and as of January 2021. However, if the parties fail to agree, then in June the price of “black gold” again to collapse below $20, that will be a shock for the Russian budget and the national currency. The dollar rate may exceed 80 rubles. Therefore, probably, Russia will have to make concessions to OPEC+ and agree to freeze the timing of the lifting of the moratorium on the production of “black gold” — said the head of IAC “Alpari” Alexander Razuvaev.