The OPEC + mining alliance, even after three attempts in early July, could not agree on an increase in production in August and the distribution of production quotas for next year. The subject of controversy was the claims of the United Arab Emirates, which considered that the proposed conditions for the expansion of capacity were unfair. The date of the next meeting of the cartel members is still in question – perhaps the new summit, at which the producing countries decide on their future production policies, will be held in August. Until that time, according to industry experts, OPEC + took a vacation: the existing quotations in the range of $ 74-77 per barrel are quite suitable for the oil tycoons.
The extremely difficult negotiations between the OPEC + members, which lasted the entire first week of July, did not lead to the long-awaited consensus. The United Arab Emirates, the alliance’s third-largest production country, has taken a special position. On the one hand, the representatives of the UAE, like all other parties to the agreement, gave the go-ahead to increase their own capacities. But at the same time, Abu Dhabi insists that the production limits introduced by the end of 2018, which limited the production of the UAE by 20%, cannot be compared with the “losses” of the leaders of the association – Saudi Arabia and Russia, who cut their capacities by only 5%.
Backstage meetings between oil generals from different countries continue – the members of the producing organization are trying to agree on the volume of a monthly increase in production, which will provide the market with an export increase of 2 million “barrels” per day until the end of the year. The main obstacle remains the question of how OPEC + members can proportionally distribute the increase in production to all members of the alliance. MK experts tried to predict the development of the situation and how it will affect the price of “black gold” and the ruble quotes.
Sergey PIKIN, Director of the Energy Security Fund:
“The main participants of OPEC + in the current economic conditions are in no hurry to adopt new agreements on the limits of oil production cuts. At first glance, the United Arab Emirates is the main opponent of the prolongation of the deal. However, for the rest of the alliance representatives, the current price environment is quite acceptable: a barrel confidently exceeds $ 70 (let me remind you that at the beginning of this year the price barely exceeded $ 50). It is clear that the seasonal growth in demand for energy resources will not allow commodity quotations to approach their minimum levels. Producers are waiting for autumn, when the results of the next vaccination in the largest oil-consuming regions will become known. In particular, the US authorities promise to vaccinate most of the working population against coronavirus by September, which may cause additional interest in oil on international markets. So during the summer, average oil prices will not fall below $ 78. For Russia, such circumstances are only a plus: as long as the cost of a barrel exceeds $ 43 (the target set in the federal budget), officials do not need to think about additional sources of replenishment of the treasury. At the same time, no later than mid-September, the OPEC + countries, I am sure, will reach a compromise – an increase in mining limits by 2 million “barrels” by the end of the year will not cause a collapse in quotations. The only threat is the production of Iran, whose oil could spill onto the market if the nuclear agreement with the United States is resolved. Nevertheless, as a last resort, Saudi Arabia, as has happened before, can limit its production to maintain the total quotas of the alliance, and the increase in the total production of OPEC + will be distributed to all parties to the transaction. “
Artem DEEV, Head of Analytical Department, AMarkets:
“Next week will show whether the participants in the OPEC + deal will be able to agree among themselves. So far, the countries have taken the time to agree on new conditions, but it is impossible to wait long in this case, since investors negatively perceive the delay, fear a new trade war, and against this background, oil prices are decreasing, which means the income of oil producers. Probably, the production conditions will be changed upwards, but not by 700 thousand barrels, as the UAE asks, but by 500-600 thousand, as Russia initially proposed, since the members of the alliance very often listen to the opinion of our state. Now countries are analyzing the damage from the third wave of coronavirus, and the dynamics of fuel demand in current conditions. It is very difficult to predict how events will develop further, since the pandemic factor cannot be ruled out, at least until the end of the year. But if OPEC + agrees in the near future, by the end of the summer oil will be traded in the range of $ 72-75 per barrel, which will support the ruble exchange rate ”.
Natalia MILCHAKOVA, Deputy Head of IAC “Alpari”:
“The meeting of the ministers of the OPEC + countries was disrupted due to the uncompromising position of the UAE. Abu Dhabi was ready to accept the offer of Russia and Saudi Arabia to increase oil production only if it refuses to extend the OPEC + deal itself after April 2022. It is logical that the OPEC + participants will be able to agree and work out a compromise solution only if Russia and Saudi Arabia, as leaders of the alliance, will be able to persuade the UAE to change its position.
As a result, a new truce can be achieved not so much on Russia’s terms as on the challenges of Saudi Arabia and the rest of the OPEC + countries. Russia has already managed to bargain for relatively favorable conditions for oil production – since the spring of this year, our companies have been increasing production, while Saudi Arabia continued to undertake obligations to reduce production. However, this year demand will grow faster than supply, as the world economy is gradually emerging from the crisis. A reduction in oil production amid growing demand may cause a shortage of “black gold” in the coming months. Such a disposition will push the rise in oil prices upwards – within one or two months, the price of Brent may reach $ 80 per barrel. For the ruble exchange rate, such prices are quite favorable: against the background of such marks until the end of the year, the value of the dollar will remain within the limits of 71-75 rubles, and the euro – within the range of 86-91 rubles. “
Petr PUSHKAREV, Chief Analyst at TeleTrade:
“Many in the market were reassured by the statements of the Minister of Energy of Saudi Arabia, Abdel Aziz bin Salman, with which he reassured everyone, recognizing the possibility that OPEC + would hold a productive meeting in August, having finally agreed on the parameters of quotas by the end of the year. The minister noted that the alliance members are interested in supplying additional barrels to the market “the faster the better,” and added: “We should not overdo it. If we do nothing, we will be acting carelessly. And if we overdo it, then this is also negligence. ” But it is precisely on the achievement of a compromise between Saudi Arabia and the United Arab Emirates that what the deal will be now primarily depends.
The oil market has already felt a taste of some certainty: after a very quick correction down to $ 72 per barrel by the morning of Thursday, July 8, prices quickly faced a flow of counter demand, moreover, from serious buyers of “black gold” for production needs from Asia and Europe. As a result, by the middle of the same day, Brent was trading at $ 74, and on Friday by noon and around $ 75 per barrel. And the very first reaction to the not really summed up the results of the interrupted July OPEC + summit was precisely the growth of quotations in hot pursuit to the level of $ 77.8 per barrel, and only then a short wave of price decline began.
I believe that even now there was only a repositioning: buyers massively took advantage of the situation to stock up with physical oil barrels and electronic contracts at a lower price. And the consensus of the oil market will, as before, proceed from forecasts of reaching $ 80 per barrel or higher by mid-autumn.
Russia, like the Emirates, could also demand for itself a more substantial increase in production quotas, but most likely it will not do this so as not to ruin an already difficult deal. Moscow should try to make its political contribution to the reconciliation of the negotiators from the Gulf countries. Indeed, in fact, an increase within the already agreed parameters will bring our country additional export revenues in the amount of at least $ 3 billion by the end of the year. Of course, this will continue to have a moderately – positive impact on the ruble exchange rate, which may remain for some time in the range of fluctuations from 73 to 76 per dollar. And then the rate will continue to slowly but surely move towards the mark of 70 rubles per dollar – oil prices will remain a supporting long-term factor for the Russian currency ”.