On Friday, December 7, world oil prices are showing a new wave of decline. So, in the first half of the day, the cost of energy of the Brent reference brand dropped by 1% to $ 59.5 per barrel. This is evidenced by the data of the London Commodity and Raw Materials Exchange ICE.
Oil depreciation occurs after unsuccessful negotiations of OPEC in Vienna on December 6. The ministers of oil-exporting countries could not agree on the volume of reduction in hydrocarbon production within the OPEC + alliance in 2019. This was after the meeting, said the Minister of Energy of Saudi Arabia, Khaled al-Faleh, Bloomberg writes.
Note that even on the eve of the last meeting, on December 5, the OPEC Ministerial Monitoring Committee + recommended exporting countries to reduce production volumes in the first half of next year.
As Khaled al-Faleh said before the start of negotiations, reducing production by 1 million barrels per day and extending the transaction deal for more than six months in 2019 could be the best option. Iranian Oil Minister Bizhan Namdar Zangane stressed that the potential level of reduction in energy production was discussed in the range of 1-2 million barrels per day, TASS reported.
As Vasily Karpunin, head of the stock market experts department at BCS Broker, explained in an interview with RT, OPEC + participants are forced to cut production again due to the overproduction of energy in the world. Thus, the global demand for hydrocarbons falls below the supply volume, and, according to the US Energy Information Administration (EIA), in the second quarter of 2019 the excess oil will exceed 1 million barrels per day.
“After the first triumphant transaction to reduce oil production by the leading exporting countries in 2016, the global market for“ black gold ”gradually returned to a state of balance. However, such a success turned the head of the cartel, who managed to attract Russia to its side, and in June 2018 the allies of the deal decided to increase production. Against the background of the active growth of the American shale industry, this gradually led to talks about oil surplus on the world market, ”explained Sergey Drozdov, an analyst at Finam, in an interview with RT.
The excess of supply over demand was one of the reasons for the intensified fall in oil prices in recent months. So, since the beginning of October, the barrel of raw materials of the North Sea reference brand Brent has fallen in price by almost 31%. Moreover, as noted by Freedom Finance analyst Alain Sabitov, the threat of a slowdown in the global economy against the background of trade wars and relaxation of sanctions against Iran by the United States also affected the sharp decline in oil prices.
“The current price level near $ 60 per barrel is comfortable for many countries and represents a certain conditional balance. Since the fall in value from the $ 80 mark was too rapid, an agreement to reduce oil production is necessary to reduce price volatility. The market should be made to understand that OPEC + members are interested in price stabilization, ”Roman Serpeninov, Private Banking investment director at Loko-Bank, said in a conversation with RT.
Difficulty convincing
Experts explain the lack of consensus on the results of the negotiations by the presence of a number of contradictions within the OPEC + pact participants. For example, the Iranian Oil Minister stated that Tehran would not reduce energy production until the lifting of US sanctions.
- Reuters
- © Leonhard Foeger
In addition, unlike Saudi Arabia, Russia, the United Arab Emirates and Iraq, other members of the alliance have not recently resorted to an increase in oil production, said Vasily Karpunin. Against this background, the need to reduce production again could cause discontent on the part of smaller cartel members. It is noteworthy, as the expert emphasizes, that after the decision of Qatar to withdraw from OPEC, the influence of small players in the organization should increase.
“It is obvious that the higher the price of oil, the more exporters can earn, the difficulty in negotiations lies in the level of production decline for each participant in the negotiations. No one wants to lose market share, but everyone is interested in price stability, ”notes Roman Serpeninov.
In addition, according to experts, although Russia did not participate in the discussion on Thursday, its position also causes certain difficulties in reducing the volume of oil produced. According to Karpunin, the reduction of production for the Russian Federation is not an easy process from a technological point of view, especially in the winter period. Against this background, Moscow may ask for a postponement if the decision to reduce oil production for OPEC + is made. Moreover, as noted by Alain Sabitov, the current level of energy prices suits Russia, which also makes it difficult to reach a consensus.
“The budget of the Russian Federation contains the price of oil at $ 40 per barrel, which allows you to take a fairly tough position in the negotiations. Russia's participation with almost 10% market share is a key factor in the viability of a deal to reduce production. In general, the budgets of most oil-producing countries are satisfied with a price slightly above $ 50, which can also be attributed to negative risks for a deal, ”Sabitov added.
Moreover, according to the analyst, difficulties in negotiations could arise due to the changed geopolitical relations between the USA and Saudi Arabia. Market participants suspect that after the murder of journalist Jamal Hashukji, the influence of the United States on the kingdom’s actions could grow, since Riyadh would not benefit from spoiling relations with Washington, the expert said.
On the eve of the meeting of the countries-exporters of oil in Vienna, the American leader urged the participants in the meeting not to reduce production volumes. The head of the White House wrote about this in his microblog on Twitter. According to Sabitov, this kind of pressure has caused investors to doubt the ability of OPEC and the members of the OPEC + agreement to come to a consensus. Against this background, during the trading on Thursday at the London Commodity and Raw Materials Exchange ICE, Brent's barrel became cheaper by almost 5%.
At the same time, as head of the Ministry of Energy of the Russian Federation Alexander Novak assured, members of OPEC + always base their actions on the real situation on the market, and not on political statements on Twitter. According to the UAE Minister of Energy, Suheil Al-Mazrui, the decision on quotas to reduce production levels should be made on the basis of an analysis of the data submitted by the parties to the transaction. This writes Tass.
- Alexander Novak
- Reuters
Second round
According to experts interviewed by RT, if the OPEC + pact participants ultimately decide to reduce oil production by 1 million barrels per day or more, this will really help rebalance the hydrocarbon market and stop the fall in energy prices. In the event of such a development, Vasily Karpunin predicts the return of Brent crude quotations in the range of $ 65-70 per barrel.
“At this stage, the consensus forecast for production reduction is 1–1.3 million barrels per day, and when it is implemented, the price of the standard Brent variety can rise to $ 71 per barrel in the medium term,” added Sergey Drozdov.
The second round of negotiations will be held in Vienna on Friday. This discussion will be held in an expanded format with the participation of both ministers of the oil cartel countries and their allies in OPEC +. It is expected that exporting states will ultimately be able to designate production cuts and sign a new cooperation agreement for 2019.