On Friday, March 6, the parties to the OPEC + agreement could not agree on an additional reduction in oil production. Following the two-day talks in Vienna, the parties decided to continue cooperation from April 1, 2020, but without commitments to reduce the production of energy resources. This was stated by the head of the Ministry of Energy of Russia Alexander Novak.
“As for the reduction, probably, taking into account today's decision from April 1 of this year, we do not have any of the countries that are members of OPEC and non-OPEC commitments to reduce,” Novak quotes RIA Novosti.
According to him, now a possible increase in oil production by Russia will depend on the plans of national companies. In the near future, the head of the Ministry of Energy may meet with representatives of the Russian energy business to discuss the situation.
Recall that from January 1 to March 31, 2020, members of the OPEC + alliance, including Russia, reduce production by 1.7 million barrels per day compared to the level of October 2018. Fulfillment of the terms of the contract was supposed to restore the balance of supply and demand in order to keep oil prices from significant fluctuations. However, market pressure was exerted by the unexpected spread of coronavirus in the world.
At the end of December 2019, Chinese Wuhan authorities reported an outbreak of a respiratory infection of unknown origin. According to local experts, the cause of the disease was a new type of coronavirus. To date, according to the State Committee for Health of China, the number of people infected in China has exceeded 80.4 thousand, more than 3 thousand of them have died.
According to recent estimates, the total number of infected people in the world has reached about 100 thousand people.
According to experts, the spread of the disease has already provoked a massive reduction in trade, passenger traffic and fuel consumption. Against this background, OPEC has more than doubled its forecast for growth in global oil demand in 2020.
“The COVID-19 outbreak had a significant negative impact on forecasts for global economic growth and oil demand in 2020, especially in the first and second quarters. We expect that global oil demand growth in 2020 will amount to 0.48 million barrels per day, compared with an estimate of 1.1 million barrels per day in December 2019, ”the organization said.
On March 5, OPEC countries recommended reducing oil production under the OPEC + agreement by another 1.5 million barrels per day. Meanwhile, an additional decline in hydrocarbon production remains unprofitable for Russia. About this in an interview with RT said EXANTE managing partner Alexei Kiriyenko.
“It is unprofitable for Russia to infinitely inferior its market share. The country's budget is balanced at much lower oil prices than we see now. In addition, in recent years, we have formed a financial “airbag” in the form of gold and foreign exchange reserves, which allows us to fulfill all budgetary obligations at a low cost of oil. Therefore, today Russia has room for maneuver in order not to reduce production and strategically compete for market share, ”Kiriyenko noted.
Investor dissatisfaction
Meanwhile, the alliance’s final decision to refuse to reduce production caused a negative reaction from investors. So, if in the middle of the day on March 6, the price of Brent crude oil fell by 1.8%, to $ 49 per barrel, then already at Friday evening trading quotes fell by 8.9% to $ 45.54 per barrel. The value has become the lowest since June 2017.
“Investors expected a very serious reduction in production. Now the signals that Russia and OPEC cannot agree on new measures are capable of destabilizing the market and returning it to the state that was observed back in 2014-2016. However, today the situation is distinguished by the fact that world central banks, one by one, report a softening of their monetary policy, which in the future can support demand, ”Kiriyenko added
According to Anton Pokatovich, the chief analyst of BCS Premier, in a conversation with RT, further dynamics of oil prices will largely depend on the situation with coronavirus. According to the expert, if quotes continue to decline record-high, the countries participating in the OPEC + deal will still be forced to agree and keep the market from collapsing.
“In the case of the global economy moving into a recession under viral pressure, in our opinion, oil prices may show a decline up to $ 30 per barrel. Such a situation may force exporters to strengthen cooperation again, ”the analyst noted.
However, hydrocarbon exporting states may return to the negotiating table in the coming weeks. This point of view was expressed by Iranian Oil Minister Bijan Namdar Zangane.
“The market needs a decision to reduce production. In the coming weeks, I think we can hold consultations and make a new decision. Without Russia, OPEC will not reduce (production. - RT ). We need time so that everyone can calm down and negotiate again, ”TASS quoted the Iranian minister as saying.