The agreement to reduce oil production ... between American influence and the challenge of the global recession

Abdul Hafiz Al-Sawy

It seems that the negative economic repercussions of the Corona disaster will continue to extend and affect the overall global economic activity, especially in the oil market, despite the importance of oil in the prevailing civilization system, being the backbone of the main sources of energy. 

Some thought that the "OPEC Plus" agreement is the magic wand, which will restore a state of balance to the international oil market, and the reactions of the oil market to this agreement concluded on Sunday, April 12, differed, as prices improved on the day following the agreement by about 4.1%, But after that, it retreated to what it was before the signing of the agreement, up to a little more than $ 30 a barrel of Brent crude. 

The "OPEC Plus" group had reached an agreement to reduce its production ceiling during May and June 2020 by about 9.7 million barrels per day, representing 10% of the global production volume, and in solidarity with OPEC Plus other producers, to announce a reduction in their production ceiling by about 10 million barrels per day. 

Thus, the expected total reduction is about 19.7 million barrels, equivalent to approximately 20% of the global production volume, which represents four times what was achieved from the production reduction following the global financial crisis in 2008. 

The importance of reaching the OPEC Plus agreement cannot be underestimated, but it remains an important step in arranging the files of the dependent variable, not the independent variable. The stability of oil prices is undoubtedly an economically important factor at the global level, to help in making sound decisions regarding the cost of investment, the fact that Fuel is an unmistakable cost in any investment field. 

It is recognized that the collapse of oil prices harms the economies of the oil sector, and the associated activities and various fields, engaged in extraction and refining activities, as well as transport and trade, and stock exchanges based on its own dealings. 

But the developed and emerging countries want oil prices to remain at a level that does not lead to high inflation, and there is agreement between these countries not to return to the level of $ 100 a barrel of oil, but to remain in a circle that does not exceed $ 65. 

This price rate guarantees acceptable profit margins - from the point of view of oil consumers - to oil producers and sellers, and at the same time pays an economic performance that helps to achieve growth rates that link the global economy to the desired recovery state. 

But this behavior by the developed and emerging countries, or what we might consider to be the consumers ’side, confirms that the oil market has turned into a market that is controlled by consumers, and that producers have ended their role in achieving a balance of interests equation in this market.  

AmericaAnd handThe phenomenon
in capitalism talks about the invisible hand that works to restore balance to the market, but the "OPEC Plus" agreement emphasized the American role in managing the global economic system, especially in the oil market, so the parties (Saudi Arabia and Russia) did not sit until after the American intervention, as they did not. They reach an agreement and announce its results and abide by it only after American pressure. 

The American intervention was not for the interests of the parties or the global market, as it was related to the interests of the American shale oil companies, in order to continue production, and to save millions of jobs in America, so that America accepted to reduce its share of production to compensate for Mexico’s refusal to reduce oil production, which is Evidence that America is reaping a bundle of interests for the OPEC Plus agreement to come out.

Which means, that the oil price war that erupted last March was managed by America, and that Saudi Arabia fought this war by proxy, but Russia will not exit from this agreement by simply improving or stabilizing oil prices in the international market, there is an opportunity to obtain Gains from Trump and his administration in light of the problems America suffers from due to Corona. 

This does not mean that the oil price war is over, but it is flammable again, whenever the interests of those who manage the oil market right now, namely America, are required. 

StagnationLimitsFromreapFruits
There is an important result reached by many experts involved in the oil market, which is that the "OPEC Plus" agreement may help to stabilize oil prices at their low rates, but it will not succeed in raising prices, and to return them to before the crisis of Corona higher than $ 60 a barrel. 

This is because the independent factor in achieving a return in prices in the oil market, to what it was before Corona, is the return of global economic activity, and out of the recession, which resulted from the almost complete disruption of air travel and travel, and the paralysis of production, due to the ban on the movement of societies , Afraid of transmitting the infection. 

If the recovery of global demand returns, then undoubtedly oil prices will improve, and there are expectations that oil prices will remain on the global market at $ 30 a barrel, until the end of the first half of 2020, and if global demand improves, according to the optimistic scenario at the end of 2020, it may rise The price of oil reaches $ 45 a barrel, and the year 2021 will be the beginning of further improvement and access to pre-SK prices.

In light of international parties seeking to preserve what was reached within the framework of "OPEC Plus", countries like America and India are heading to employ the strategic inventory mechanism to absorb part of the excess supply in the markets, as India announced its intention to add 19 million barrels to its oil reserves in May / Next May, as America announced, through negotiations with local companies, its intention to add 23 million barrels to its strategic reserves. 

An independent foresight of the agreement It
can be said that several things were taken into account in relation to the "OPEC Plus" agreement, including the fact that the agreement will enter into force next May, which enables producers to fulfill their obligations they entered into in the context of the price war during the remainder of April / April.

The other issue is that the agreement is valid for two months, which means taking into account Corona's developments. If a solution to this crisis is reached, the problem of stagnation will ease in the global economy, and thus the production ceilings will be reconsidered. 

In the event that a solution is not reached and the recession remains in control of the atmosphere of the global economy, the agreement extends for other periods, similar to what happened within OPEC in the agreement to reduce production ceiling since the end of 2016, which entered into force in 2017, and was renewed for various periods until mid-March last .

The agreement is an appropriate way out for both sides of the price war crisis. Russia, which suffers from the exit of a significant part of the indirect investments since the beginning of 2020 due to Corona, cannot cope for a long time with the collapse of oil prices. 

Likewise, Saudi Arabia, which is heavily indebted to foreign indebtedness, recently announced Aramco’s intention to negotiate with a bank group for a $ 10 billion loan in order to fulfill its stake in the acquisition of SABIC, as well as the negative effects on the Saudi economy due to the Corona crisis.