How to deal with the pluses
The restriction on oil production, provided for by the OPEC + agreement, in which almost all countries with significant production capacities participate, were extended immediately until the end of 2022. This became known on Sunday following a somewhat belated July meeting in Vienna.
Another Vienna meeting of oil producers ended unexpectedly peacefully. And this is despite the fact that the number of those wishing (not always publicly) to remove all restrictions on the extraction of black gold are constantly growing. With each ministerial meeting, one or two countries are added.
Nevertheless, so far even the most violent ones, such as once Mexico, Russia or Kazakhstan, then Nigeria and the United Arab Emirates, and now Iran and Iraq, have been persuaded to calmly increase the total volume of production. 400 barrels per day monthly.
This relaxation means that the OPEC + deal will actually be reduced to almost zero in about a year. By that time, the total production volumes will be equal to the average, which were recorded several months before the pandemic.
In this regard, for some reason, October 2018 was taken as the starting point, but the ministers there, in Vienna, seem to know better. It is possible that in September, at their next meeting, the starting points will be different.
In the meantime, by the end of this year, the level of production reduction should decrease from the current 5,76 million barrels per day to 3,7 million barrels per day in total for all parties to the agreement.
Then, as we can see, it will take only nine months to reach the pre-pandemic level. However, the main result of the Vienna meeting in July 2021, observers consider the fact that none of the parties to the agreement opposed the maintenance of the mechanism for coordinating oil production levels.
The bargaining is only about specific quotas for specific countries, and such parties to the agreement as Iran and Iraq, heavily affected by the sanctions, are less active in this regard than, for example, the UAE, Qatar or Kuwait. The latter, it seems, literally every barrel.
How to be without pluses
The Vienna agreements also do not cancel the very possibility of introducing, if necessary, new restrictions on production. In addition, the representatives of Saudi Arabia made it clear that in the event of uncoordinated actions by any of the OPEC + participants, they reserve the right to more actively maneuver their own production volumes than before.
Recall that the daily million barrels from the sheikhs at one time allowed to raise oil quotes to levels that, due to the pandemic, seemed unattainable to many. Now oil, as you know, is quoted only 25-30 percent lower than before the pandemic.
A certain danger of a new wave of falling demand remains, since even rather high rates of vaccination in developed countries have not yet led to a turning point. The threat of new lockdowns persists; accordingly, the threat of serious economic problems and, as a consequence, a strong drop in demand for hydrocarbons is recorded.
The situation is aggravated by the activation of environmentalists and fighters against global warming, which is why the oil and gas market is simply under unprecedented pressure from the media.
But the protracted saga with the "Northern Channel-2" only in the short term promised to remove a number of problems, although so far it only creates them, but for oil and gas prices this is only an additional stimulus to growth.
Nevertheless, it is no coincidence that from May 2022, it is planned to establish increased production quotas for the five countries of the OPEC + agreement (Russia, Saudi Arabia, the United Arab Emirates, Kuwait and Iraq). The pluses for them will actually turn into new minuses.
Thus, the leading tandem in the agreement, Russia and Saudi Arabia, assumed additional quotas of 500 barrels per day. However, they immediately demanded support from the UAE, which received a new reduction quota of 000 thousand barrels, as well as Iraq and Kuwait, which accounted for 330 thousand barrels each.
Deputy Prime Minister Alexander Novak, the curator of the Russian fuel and energy complex, has no doubt that the current oil shortage on the market does not in the least frighten OPEC + participants. The factor of fear for them is the very real prospect of a momentary drop in demand.
He recalled that OPEC + made a key decision - slowly and correctly, but with a constant eye on the conjuncture, to restore oil production to the pre-crisis level. Of the amount of 400 thousand daily barrels, Russia will increase oil production by 100 thousand every month.
Our oil industry is to reach the pre-crisis level in that very May 2022, when the aforementioned quotas for the “five” begin to operate. Novak has no doubts that the slightly adjusted rules of the game will allow Russia to increase production by a total of 21 million tons of oil during this and next years.
According to the Deputy Prime Minister, the country's budget can count on additional replenishment in the amount of more than 400 billion rubles. At the same time, Alexander Novak noted that the calculation was carried out based on the average oil price of $ 60 per barrel, which is about 20% lower than the current level.
Let's remind that before the last weekend the exchange trading in oil closed at 73,3 dollars per barrel for Brent and 71,5 dollars per barrel of WTI.
2019, the last year before the surge in Covid-19, became a record for the Russian oil industry. Then oil production in our country increased by 0,8% to 561,2 million tons. And the past pandemic year, as one might expect, almost broke all anti-records with a drop of 8,6% at once compared to the previous year - up to 512,8 million tons.
Coordination of efforts of oil-producing countries became possible almost immediately after the brutal, albeit short and by no means victorious, oil war between Russia and Saudi Arabia. Then, as you know, the sheikhs went for an unprecedented dumping, but, having suffered huge financial losses, they themselves became the initiators of the new OPEC + agreement.
Agreements involving not only Russia, but also the traditionally intractable USA and Mexico. Today, a coordinated and smooth increase in production volumes can be considered the optimal solution. It helps to avoid not only a fall in prices in the event of an oversupply, as well as a shortage of hydrocarbons, but also overheating of the market.
Demand by all indications, unless the pandemic presents new unpleasant surprises, will gradually recover. And the agreements reached are a kind of insurance and a positive signal to reduce tension in the oil market.