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Saturday, March 17, 2018

Russia and Saudi Arabia would bring the price of oil to $60

There is every reason to believe that in the coming months, oil prices will surely go up, and reach up to $60 per barrel. Rationale — Moscow and Riyadh signed an agreement to stabilize the market of “black gold”. The Saudis, as well as the us and many other countries, due to low oil prices, budgets bursting at the seams. What you need to do to achieve this growth, not difficult to guess — to hold the “freeze” of production to create artificial shortage. Ready both Russia and Saudi Arabia and some other OPEC countries, e.g., Algeria and Venezuela. But there is an obstacle — Iran, which after the abolition against him by Western sanctions, is rapidly ramping up production and does not allow the pair to move up. Will it be possible to convince Tehran to freeze production, it will become clear in September at the International energy forum in Algeria.

photo: Gennady Cherkasov

The signing of the agreement on stabilization of the oil market between Russia and Saudi Arabia though, and became a sensation, but as a bolt from the blue sounded. Representatives of the relevant departments of Moscow and Riyadh are not times to hold informal meetings among themselves, but of specific instruments was not.

Now, some specifics there. “Our coordination will be critical to ensure market stability. In fact, we are opening a new era of cooperation, our energy cooperation is moving towards a more deep and close cooperation and strategic partnership”, — said Russian energy Minister Alexander Novak.

The first meeting of the bilateral working group on cooperation in the field of oil and gas to be held in October. I’m supposed to develop recommendations on joint measures and joint actions to ensure stability and predictability of the oil market. Ministers of both countries agreed to work jointly or in cooperation with other oil producers.

But no one doubts that the main goal, the achievement of which will devote itself to both parties, will be coordinated with other major oil producers agreement on the joint “freezing” of production at a certain level.

Yes, no one hides that is the main question that is on the agenda not only in Russia the lion’s share of the budget which provide revenues from exports of “black gold”, but almost all oil-producing countries.

That “freezing” of production will be the right decision, said Vladimir Putin. The Russian President echoed Alexander Novak, who also believes that “freezing” will have a positive impact on the oil market. Many foreign colleagues Novak agreed to take this step. For example, the Minister of energy of Algeria Noureddine Boutarfa calls the current price of a barrel was “unacceptable”. In his opinion, it should be in the range of $50-60. In fact, he hinted at limiting the production. Two hands in favor of this decision, the votes of Venezuela. The issue said the United Arab Emirates and Kuwait.

At first glance, all the “pros” and “freezing” of production is the inevitable way out of the current stalemate in the oil market. But not so simple. Against such a measure stands Iran, which is part of OPEC and is the second production level representative of the cartel. After the cancellation against Iran sanctions (they, in particular, was the fact that the country was forbidden to export oil to the US, EU and Japan) Iranian enterprises significantly increased their production. This was one of the reasons why the cost of “black gold” does not hold at least at the level mentioned by the Minister of energy of Algeria. And to stop the Iranians is not going to. They want to raise daily production to the level which they had prior to the sanctions. Is 4 million barrels. The Iranians now a day produce 3.8 million barrels. To achieve the desired Tehran will take two to three months.

Theoretically favoring the “freeze” is appropriate. The Ministers of the countries — major oil producers must negotiate on this issue in September, the International energy forum in Algeria. But then the meeting of the parties will be informal. Finally staple the relevant documents seals is planned for the November meeting of OPEC in Vienna. By this time Iran will be able to increase production to pre-sanctions levels, and excuses Tehran will not remain.

So the chances of that “freezing” will occur and prices will rise, still exist. Amid expectations the last meeting between Alexander Novak and Minister of energy of Saudi Arabia Khalid al-falikha the cost of “black gold” has increased significantly (by more than 4%) and reached almost $50. But then when the market became aware of the details of Russian-Saudi agreement, that is, the market understood that this agreement is rather a framework and is not specific, quotes began to be adjusted and to the end of the day fell to $47,5.

Apparently, to find out what will be the price of oil next year, will have to wait for at least September, when the main getters of the world will meet in Algeria. But, most likely, have to endure until November, when OPEC members will meet in Vienna.

Sanctions . Chronicle of events

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