Toward the end of last week, already, as they say, on the flag several leading Western publications at once finally started talking openly about what they had been whispering about (if you may call it that) on the energy markets for quite some time. At the upcoming meeting of key participants in the OPEC and OPEC + agreements, which is scheduled for July 15, 2020 via videoconference, Saudi Arabia, apparently, having obtained preliminary support from other partner countries (and, above all, the Russian Federation, whose opinion here, it’s technically the most significant), he will propose, according to the information received by The Wall Street Journal, it will rather soften the quota for reducing oil production: from approximately 9.7 million to 7.7 million barrels.
And, apparently, the matter is already really resolved, the question here is only one thing: when exactly to begin the agreed mitigation. And this, it seems, will just be the main practical issue for July 15, which the participating countries will decide during the ministerial video conference: should the limit of 9.6 million barrels per day be kept for another month or reduced to 7.7 million barrels already starting in August?
Each of these scenarios has both supporters and opponents (by the way, which is funny, both within some participating countries and in the Russian Federation, including, which is not surprising - the question is, sorry, practical and financial), but judging by Apparently, in conditions of recovering demand, the countries participating in the OPEC + agreement are still more inclined toward the second option.
Furthermore.
Judging by the statistics of potential fixed shipments for August, the issue can actually be considered resolved from a practical point of view: in fact, it remains only to more or less formally document and document it accordingly. And in Russia, judging by reports appearing in the American media as well, large oil companies, not hiding much anymore, are preparing to increase production next month, despite the absence of relevant instructions from the domestic Ministry of Energy so far.
Officially, potential mitigation of production reduction conditions is naturally associated with demand recovering ahead of forecasts to the level that was before the coronavirus restrictions. And the report of the International Energy Agency, which appeared a little earlier, is also, to put it mildly, encouraging: almost the overcoming of the crisis is already being recorded there. And, to our taste, it’s even rather prematurely asserted that the worst expectations were not confirmed, the “dynamics of negative effects” are slowly remaining in the past and everything will now be more or less good - and after a while it’s already very fine.
Up to the point, it’s “excellent” that, as it is written (albeit in a different story), the same The Wall Street Journal, which reported the forthcoming easing loudest, was interviewed by analysts from such fairly respected organizations as JPMorgan Bank or Hedge Northern Trace Capital fund, they confidently predict that oil will almost rise to $ 100 per barrel by the end of the current year or before the beginning of next year, and by the year 2025 it will be completely exceeded for absolutely insane $ 150. Of course, this, to put it mildly, is a bit of a fantastic forecast for today.
The fact is that, despite the fact that for more than a month and a half already, prices for Russian Urals oil have been in the range of $ 35-45 quite comfortable for our oilmen and comfortable for the country's budget, this, unfortunately, does not lead to its (budget) break-even : not just because of the price, but because of the objective drop in production volumes. And there is too much temptation to compensate for the fall in volumes precisely by rising prices.
And first of all, for some reason, the financiers, although it would seem to whom, if not them, in the first place it makes sense to understand a rather banal thing: in a rather harsh world of strategic oil realities, there is such a thing as swing producer, which is not entirely the exact translation sounds rather clumsy as a "balancing provider." And this is the swing producer, obviously, in the current situation, the US shale industry is acting. And one more thing: technologically, shale mining has a lot of disadvantages compared to traditional, but there are also some advantages - in particular, it is quite easily mothballed.
Well, legally, the agreement that the world has already decided to confidently call OPEC ++ has not been drawn up, sorry, nothing. And confidence in its observance lies exclusively in the field of almost primitive “natural law”.
Namely, as long as the price of oil does not exceed a certain price line (approximately, very approximately, it is customary to estimate it at $ 50 per barrel), the American partners will stupidly abide by this agreement - simply because of the physical impossibility to violate it.
But beyond that lies an area of uncertainty, and it is better there for the time being not to take any particular risks.
But also not this in the current situation, forgive, as it turns out, the most piquant.
There are things there and even more curious ones.
The fact is that the “dumping” launched by the Saudis, which happened before the conclusion of the last comprehensive transaction of OPEC ++, had one positive effect from the point of view of domestic oil production and very curious from the point of view of any independent observer: it suddenly turned out (say, what a surprise!), that the like is drawn to the similar in the real, and not virtual, exchange world of oil production and refining, light Arabian varieties compete primarily with light North American WTI, and not with Russian Urals. And therefore, it is the kingdom of Saudi Arabia, even if it is not very profitable for them, unlike Russia, for budgetary reasons, will vigilantly monitor compliance with the price corridor around about $ 40 per barrel, at least until the real recovery of markets. Or before concluding (frankly, hardly technically achievable) a legally binding production regulation agreement with the United States.
And it is in this corridor that it makes sense for us to wait for oil, and it is precisely to it that we focus.
No, short-term price fluctuations are certainly possible and will certainly be: there are too many factors, including a purely speculative stock market game. But the long-term OPEC + strategy is already more or less clear: pushing off the bottom (which, apparently, has already happened), increase production as soon as the “shale threshold” breaks through and the swing producer even begins to be tempted to “rebalance supplies”, and as long as possible, preferably until the moment of the most complete restoration of at least the pre-crisis level of world production.
And then - then you can compete.
As for the Russian Federation itself, that is, you and I, in this particular situation we are more likely to act as observers. Interfering in the struggle for other people's markets - we still have no desire for this, in general. I could handle it with my own.
But we will not even let anyone enter our territory, and after the “Arab attempt” everyone, including the Saudi kingdom itself, is well aware of this. In principle, the position is far from the most uncomfortable, especially in the conditions of a comprehensive systemic crisis - and it’s somehow rather silly not to understand.
But the most important thing in what is happening is not even that.
The most important and partly even surprising thing here is that this is essentially an informal and almost unformed OPEC ++ agreement, albeit quite crookedly, albeit with obvious shortcomings (a rather obvious front in the face of the same Nigeria, Iraq and Kazakhstan - still exists, and this trio decently, in particular, lags behind in the process of reducing production), but it works. Moreover, almost stuck together on his knee (and no one is hiding this) in the conversations of Putin and Trump, does this almost more concretely and efficiently than any other global supranational economic institution. And this definitely inspires some hope: that means, despite all the objective and subjective difficulties, effective and pragmatic agreements are possible even in the modern crazy world. Or, which, of course, is much worse: perhaps only such agreements now work in it. And this is also at least a subject for careful and comprehensive reflection - as deep as possible in our rather superficial times, we must give credit.
The author’s point of view may not coincide with the position of the publisher.