Countries of the OPEC Plus agreement to cut oil production have begun preparations for the June 10 deadline, in which they will choose between extending existing terms of the agreement or further tightening them.
In a report published by the Russian newspaper "Nizavismaya", writer Olga Solovyova says that some countries prefer to extend the maximum quota system that each country cuts its production and continue to work until the end of this year.
But in contrast, opponents of this idea - including Russia - prefer a gradual increase in production, and this contradiction in positions could lead to a renewed price war between Riyadh and Moscow, according to followers.
The writer notes that oil prices continued to rise last Thursday, as Brent crude futures for next August amounted to $ 35 a barrel, and it is believed that this price support came from the statements of the participating countries in the OPEC Plus agreement on extending the current agreement on reducing production until After next June.
Production reduction agreement
And the author states that in April OPEC Plus agreed to cut oil production again for two years. The agreement stipulates that the size of the reduction in May and June be increased by 9.7 million barrels per day, and in the second half of the year it will decrease by 7.7 million barrels, and become 6 million barrels per day from January 2021 to May 2022.
The agreement also stipulates that Russia and Saudi Arabia will reduce production in equal quantities between them, which are 2.5 million barrels per day, and it is assumed that the reduction share for each of them reaches a rate of 2 million by the end of the year, and further decline in April 2022 to 1.5 million barrels.
The author asserts that this agreement put an end to the price war between the two countries, and helped to get rid of the surplus in global markets, and led to a rise in the price of Brent crude to 37.5 dollars in London last Wednesday, an increase of 70% compared to the previous month.
However, despite the existence of this agreement, OPEC Plus ministers are expected to meet on June 10, with the aim of making the additional decisions that are needed in order to achieve a balance in the market.
It is noteworthy that Algeria - which holds the OPEC presidency - proposed that the next meeting of OPEC and its allies be held on June 4, instead of a previous plan to hold it on the ninth and tenth of the same month.
Russian position
The author says that it is clear that the parties are not united by a single opinion on the future of the two-year agreement. For example, at the beginning of last May, Saudi Arabia announced a voluntary reduction in its production starting from next June, by 1 million barrels per day, and the UAE and Kuwait also announced a reduction in their production by 100,000 and 80,000 barrels.
The writer also indicated that some other countries in OPEC Plus are seriously discussing the idea of maintaining the maximum quota system, in order to reduce production by 9.7 million barrels per day until next September, or until the end of 2020.
However, Russia's proposal seems unclear, as President Putin and Saudi Crown Prince Mohammed bin Salman pointed out the importance of joint efforts to reach the OPEC Plus agreement and enhance cooperation on this issue, but the views of the two parties on the future of this process appear to be contradictory.
In this context, the author explains that the Russian position remains unknown. According to sources in the Russian News Agency, Energy Minister Alexander Novak discussed this issue in a meeting with oil companies, and there is still no unified position among them.
According to Interfax, some of these companies agreed to extend the agreement for an additional two months, while others believe that it is time to start raising production in next July, and other media sources have confirmed that Russia is determined to reduce production cuts in the coming period, according to what it says It has the terms of the OPEC Plus agreement signed last April.
Some experts believe that this news about the ambiguity of the Russian position disturbs the market, and at a time when the need arises to maintain the current levels of cuts, because if the demand for oil continues to recover in the foreseeable future, a market shortage will be created during the second half of the year, which is what It will enable the "digest" of the quantities accumulated in the last period.
This scenario, which will happen if OPEC countries agree to continue to reduce production to the maximum extent possible, will accelerate the recovery of the market.
Pressure on Russia
The writer states that Saudi Arabia, for its part, will continue to emphasize extending the agreement to the end of 2020, as it considers that keeping production levels low will be the least harmful solution for it, given the technologies used in production and the state of accumulation of crude oil in ports and tanks, which is what It would enable the Kingdom to respond to the growing demand without raising production.
According to some experts, the decision on this agreement will be a purely political decision, as the pressure Russia faces from Saudi Arabia and the United States to extend the implementation of the agreement will increase significantly.
It will be difficult for Putin to resist these pressures and refuse to continue cooperating, because this will lead to a new wave of volatility in the market and a drop in prices.
Therefore, Russia could agree, for example, to make its share of production cuts at the level of 1.5 million barrels per day, although its current commitment stipulates that the reduction be by 2.5 million.
This difference of one million barrels per day, which Russia refuses to cut from its production, can be covered by other oil-exporting countries, including the United States.