Saudi Arabia and other OPEC countries have begun to reduce oil production

Saudi Arabia and other OPEC countries have begun to reduce oil production


Workers at a refinery in Iraq

Photo: Nabil al-Jourani/AP

OPEC began to cut oil production under the agreement — Saudi Arabia, the largest of them, has reduced production of almost 0.5 million barrels. a day. With the beginning of the year, oil prices rose above $57 per barrel.

Less oil

Saudi Arabia, the largest producer of crude oil included in OPEC, since the end of October 2016 at the beginning of January has reduced daily production by at least 486 thousand barrels. approximately 10,058 million barrels. per day (by 4.6%). About 5 January, reported the newspaper the Wall Street Journal , citing a person familiar with the level of production in the Kingdom. Thus, the Saudis have fully complied with their commitments to reduce production in the framework of the agreement concluded by the OPEC countries on 30 November 2016 (in total should reduce daily production by 1.2 million barrels. to 32.5 million barrels), “if not more” is promised, told the newspaper.

The oil Ministry of Iraq, which ranks second in oil production in OPEC after Saudi Arabia, has begun to reduce oil production, said on the eve of January 5th, the Minister Jabbar al-Laibi (quoted by TASS). Iraq has promised to cut production by 210 thousand Barr. (4.5%) up to 4,351 million barrels.

Wednesday, January 4, another OPEC member, Kuwait, has reported that the local Corporation Kuwait Petroleum Corporation is also committed under the agreement to reduce production by 131 thousand barrels. to about 2.75 million barrels. a day. The company intends to reduce oil exports in the first quarter of 2017, according to Kuwaiti media.

About the beginning of the production cuts represent and the countries that are not included in the cartel, but 10 Dec joined her arrangements of 11 countries agreed to reduce production by about 0.6 million barrels. a day, of which half (0.3 million barrels). took over Russia. So, Oman, mining of 1.01 million barrels. a day, since January 1 reduces production of 45 thousand barrels per day (that’s 5 thousand barrels per day above plan), said the head of the marketing Department of the Ministry of oil of the country Ali al-Riyami (quoted by TASS).

Russia intends to fulfill its obligations to reduce production gradually: by March, production is expected to decrease by 200 thousand Barr. a day, and only by the end of April — on 300 thousand Barr. a day, said energy Minister Alexander Novak in December 2016. By the end of 2016 Russia produced 547,499 million tonnes of crude oil and gas condensate, 2.5% more than the year before. This is a record figure since the collapse of the Soviet Union.

The price of Brent crude oil on news of production cuts in OPEC countries and non-cartel States grew from 30 December 2016 to 6 January by 0.56% from $56,74 to at $57.06 per barrel.

In 2017, prices for Brent crude continues to be volatile — they will bargain at the level of $40-60 per barrel. the average price will be $45 per barrel. according to the annual forecast of Moody’s, published on 3 December. Agency experts as one of major factors of influence on the oil price level of production and oil reserves in the United States, which had not acceded to the agreement of OPEC. They also indicate that in the first half of the price of oil could stabilize at $50 per barrel. subject to agreements to reduce output. But it will be difficult to control, experts warn Moody’s.

A more optimistic forecast was given by analysts of the Bank Goldman Sachs in December review by Brent in the first half of 2017 will cost $55-60 per barrel.

And President Vladimir Putin at the annual press conference on December 23 said that Russia hopes to stabilize oil prices in the second half of 2017 at $55 per barrel. “We believe that in the second half of 2017, the surplus oil will leave the market, and the price of oil stabiliziruemost. We hope that they stabiliziruemost at the current level,” — he said (quoted by RIA news). The rise in the price of barrel on $10 would mean an additional 1.75 trillion rubles of revenue for the budget and for Russian oil and gas companies — about 750 billion rubles., taking into account the decrease in production, explained Putin.

Russia will change the budget figures, if the oil in 2017 will rise to $60 per barrel. said at the end of December, Finance Minister Anton Siluanov. According to him, oil prices in 2017 will range from $40 to $60 per barrel. The Russian budget for 2017-2019 been drawn up based on oil prices of $40 per barrel. Urals oil (usually costs $2-3 less than Brent), said “RIA Novosti”.

A year of negotiations

From mid-June 2014 until end of January 2016 the price of oil Brent has decreased four-fold from $to USD 114.9 $of 27.10 per barrel. The reasons were many — from the sharp rise in production of shale oil in the US to the slowdown in China. But almost one and a half years the largest manufacturers have not taken virtually any steps to stop the collapse. Their main task was to maintain market share, so they continued to increase production in 2015, world production increased by 2.2 million barrels. per day, and the demand by only 1.4 million barrels.

Only after the fall of prices below $30 per barrel, the largest producing countries began to sound the alarm: in the beginning of 2016 Venezuela, one of the poorest members of OPEC, suggested that the partners in the cartel and outside it to agree on reducing oil production by at least 5%. But this initiative had no support, and then the Minister of oil of Venezuela, Eulochio del Pino demanded to convene an extraordinary meeting of OPEC.

16 February 2016, it became known that three members of the cartel — Saudi Arabia, Qatar and Venezuela — and Russia in Doha, the capital of the Chairman of OPEC, Qatar, agreed to freeze oil production at the level of January, but only if the agreement to join the other major manufacturers. On the news about a possible agreement of Brent prices rebounded and broke through $40 per barrel.

Since then, almost all members of OPEC have expressed willingness to join the agreement, except Iran, which is only in January 2016 has returned to the world market after the lifting of international sanctions. Its representatives have declared that do not intend to restrain the prey until it reaches the pre-sanctions levels of 4 million barrels. a day. The extraordinary power of Iran is not satisfied with Saudi Arabia, so the talks, which lasted until mid-April, has failed.

In the summer and fall of 2016 passed new rounds of negotiations with the participation of the OPEC countries and countries outside the cartel, and Russia was one of the initiators of such consultations. In the end, 30 November OPEC agreed to reduce production by 1.2 million barrels. per night (up to 32.5 million barrels.), starting from 1 January 2017, and then they were joined by another 11 countries that promised to reduce production by another 0.6 million barrels. a day.

But the rise in oil prices on the background of these agreements cannot be regarded as sustainable and long term. President and co-owner of Russia’s largest private oil company LUKOIL Vagit Alekperov September 30, 2016 in an interview to “Russia-24” has warned that the price of oil above $50 per barrel. makes enough for effective extraction of shale oil and gas in the United States, one of the causes of the collapse of oil prices in 2014-2015. Given that the United States did not join the agreement to reduce output, production growth of shale oil in this country, with the stabilization of prices at the level $50-60 per barrel. again can lead to an imbalance of supply and demand and lower prices in 2017 to $40 and even lower, depending on the production volume, said RBC senior analyst of Sberbank CIB Valery Nesterov.