Today in the world energy market there are no fundamental grounds for sharp fluctuations in oil prices. This was announced on Wednesday, October 2, by President Vladimir Putin during a speech at the international forum Russian Energy Week (REN).
“The recent massive attack on oil infrastructure in Saudi Arabia, of course, provoked a jump in oil prices. But I was convinced that everything would return to today's performance, because there are no fundamental reasons for sharp fluctuations in the market, ”Vladimir Putin said during a meeting with OPEC Secretary General Mohammed Barkindo on the REN fields.
Unmanned aerial vehicles on September 14 attacked the refineries of Saudi Arabia. As a result, a significant reduction in hydrocarbon production caused a panic among investors and triggered a sharp increase in raw material prices - from $ 60 to $ 72 per barrel. However, as production recovery recovered, oil quotes began to gradually decline. To date, they are trading near $ 59 per barrel.
“5.7 million barrels of crude oil per day is the amount that we lost due to the attack. But the way this crisis unfolded, and how it was controlled in Saudi Arabia, is admirable. In less than two weeks, the kingdom was able to take control of the situation and calm the market, ”said Mohammed Barkindo.
To maintain a stable situation in the global oil industry, Vladimir Putin and the Secretary General of OPEC agreed to strengthen cooperation on balancing the energy market. This is a partnership under the OPEC + agreement.
“It is extremely important to use all the mechanisms to balance the market, taking into account the interests of all countries, to find mutually acceptable solutions. A striking example of such a dialogue was the OPEC + deal - the first successful interaction in the history of OPEC member countries and countries outside this organization, ”Vladimir Putin emphasized.
The OPEC + agreement was concluded at the end of 2016. Under the terms of the contract, participants are reducing oil production to balance supply and demand in the global market.
It is noteworthy that the pact allowed the Russian budget to receive an additional more than $ 100 billion. This was announced on the fields of REN by the head of the Russian Direct Investment Fund (RDIF) Kirill Dmitriev.
Starting January 1, the countries participating in the agreement reduce oil production by 1.2 million barrels per day from the level of October 2018. According to the agreements, OPEC states must reduce oil production by 812 thousand barrels per day - up to 25.94 million barrels, and countries not included in the cartel - by 383 thousand, to 17.94 million Russia needs to reduce daily hydrocarbon production by 228 thousand, up to 11.193 million barrels.
According to the latest OPEC report, in August the countries exceeded the terms of the agreement and produced 25.78 million barrels per day. As the head of the Ministry of Energy Alexander Novak said on the sidelines of REN, Russia will fulfill the terms of the OPEC + deal in October.
"Black Swans"
Alexander Novak explained that due to the operation of the OPEC + agreement, oil prices remain stable and are traded near the level of $ 60 per barrel. Meanwhile, the minister also spoke about the growing risks for the global oil industry. According to Novak, because of the “black swans” of the market, it is impossible to make long-term forecasts.
“In the summer, demand for oil in the world usually grows by about 2 million barrels per day. In this period, in a good way, there should be pressure on rising prices. Production must increase in order to meet growing demand. This year for the first time we did not see this. At the same time, there are risks that in winter, compared with the summer, demand will fall. And it’s hard to predict how the market will behave in winter, ”said Alexander Novak.
The head of the Ministry of Energy added that the main factor in the uncertainty of the oil market was the trade war. Thus, the tariff conflict between the US and China reduces the consumption of raw materials in the world. Another risk, according to the minister, is associated with the sanctions policy of some countries. First of all, we are talking about US energy restrictions against Iran and China.
In November 2018, the States imposed sanctions against the Iranian energy sector. As the US State Department previously stated, the main purpose of the restrictions is to reduce Tehran’s income from oil sales to zero. For this, before the beginning of May 2019, large countries - importers of Iranian raw materials should completely stop the purchase of hydrocarbons. Otherwise, states would also be subject to US sanctions.
On September 25, Washington accused the PRC of purchasing Iranian oil and imposed restrictions on four Chinese energy companies, as well as their leaders. The corresponding decision of the United States was announced by Secretary of State Mike Pompeo.
Minus one
Particular attention of the REN participants was attracted by the news about the expected reduction in the composition of OPEC. So, on the eve of the forum, Ecuador announced its desire to leave the oil tanker from January 1, 2020. According to the Ministry of Energy and non-renewable resources of the country, the solution is related to “problems related to budget stability”.
“This measure is part of the government’s plans to reduce government spending and increase revenues,” the agency said on its Twitter.
After the statement of the Ecuadorian authorities, world oil prices accelerated the decline and at the moment fell to the level of $ 58.5 per barrel. The value has become the lowest since the beginning of September. At the same time, market participants were reassured by Saudi Arabian Energy Minister Abdel-Aziz bin Salman Al Saud. According to him, the departure of Ecuador from the oil cartel will not have a significant impact on the OPEC + deal.
“Each country has the right to act as it sees fit. As for its contribution to OPEC + efforts, it is relatively small. With all due respect, I think it’s a drop in the ocean, ”said Abdel-Aziz bin Salman Al Saud in a conversation with reporters on the fields of REN.
The words of the Saudi minister are also confirmed by official OPEC statistics. According to the organization’s latest report, in August, Ecuador accounted for only 1.8% of the cartel’s total oil production.
Note that Ecuador is not the first time to leave the ranks of OPEC. The country joined the organization in 1973, but temporarily suspended its membership - from 1992 to 2007.
Full throttle
The forum participants did not limit themselves to discussing only high-profile events in the oil market and focused on issues in the gas industry. According to Alexander Novak, today gas is one of the most promising sources of energy and in six years more than a quarter of the world's production of this raw material will come from Russia.
“Russia's share in the global balance of gas production will continue to grow, and by 2035 it may reach 26–27%. Over the past 10 years, gas production has increased by 100 billion cubic meters. For example, last year our country delivered a record amount of gas to Europe. Russia has competitive advantages - a highly developed infrastructure, while the cost is one of the lowest in the world, ”added Novak.
One of the main events of REN was the news about the imminent completion of the construction of Nord Stream 2. As Viktor Zubkov, head of the Gazprom Board of Directors, said at one of the forum’s sessions, the project can be completed within five weeks.
During his speech, Vladimir Putin spoke separately about the production of liquefied natural gas (LNG). As the head of state noted, since the beginning of the 21st century, the number of LNG consumer countries in the world has grown more than five times, and demand has doubled. Vladimir Putin said that in five to ten years, LNG will account for half of the global gas trade.
“Given these trends, we are developing the Arctic resource base, developing the Northern Sea Route and our transport fleet. We are expanding the geography of supplies of Russian hydrocarbons. Thus, thanks to the Yamal LNG project, Russia's share in the global LNG market has more than doubled and now amounts to about 9%, ”Vladimir Putin said.
As the president emphasized, by 2035 Russia could reach the level of production of 120-140 million tons of LNG per year.
For the third time, “Russian Energy Week” has become a platform for demonstrating the prospects of the national fuel and energy complex and for implementing international cooperation in the energy sphere. This year, more than 10 thousand people from 80 countries of the world became participants in the REW.