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Sunday, December 11, 2016

Alginskii warm up: can OPEC raise oil prices


“Moskovsky Komsomolets” begins to publish a series of articles about the development of the domestic economy. As you have to deal with imposed two years ago against us financial and sectoral sanctions by the EU and the US, are there ways out of the abyss into which we are trying to lose Washington and Brussels. What you need to do will meet the experts of “MK”. We will begin with main — from oil. It is the engine of the Russian economy, which is not to dismiss any one iPhone and not to run on the fastest Ferrari. Therefore, the first two articles presented to us the chief editor of “Financial newspaper” Nicholas Vardul. And here about “black gold”, and about how to return our economy to the top.


photo: Gennady Cherkasov

OPEC gave us a pleasant surprise. All waited that the international energy forum in Algeria, in the best case scenario will follow the scenario of: “If not tomorrow, then today” — and the laws of action-series solution for the freezing of oil production will slip on November 30, when will be the next official OPEC meeting in Vienna headquarters. And then, suddenly, crawled even further. It turned out differently. The meeting in Algeria has led to a much more meaningful result: announced that the previously agreed overall daily production ceiling of OPEC countries. At the November meeting need to agree on country quotas.

Iran is dictating the prices?

Until the last moment, the possibility of significant acceleration on the road to oil “Refrigerator” almost no one believed. Characteristically, the Minister of energy of Russia Alexander Novak left the Algerian forum before it ends, without waiting for a sensational climax.

It seemed that the “sworn friends” Saudi Arabia and Iran, pushing mutually exclusive conditions, once again sink hopes for a promotion to freezing, as has already happened in the spring in Qatar. The initial position of Saudi Arabia: possible freezing if it will agree to all of the country. The position of Iran: “in any case, we will increase production, the goal is to regain a niche in the market, which corresponds to a daily production of 4 million barrels with current production of 3.6 million. Prior to the meeting in Algiers, the two countries re-negotiated, but never agreed.

But in Algeria took place sensation: a step forward was made in Riyadh. The proposed compromise looks like this: Saudi Arabia is ready not just to freeze but a few to cut production if Iran will stop at 3.6 million barrels. In the figures, the Saudis are ready to return to the January level of production, i.e. to reduce it from August of 10.63 million bpd to 10.2 million in Iran, however, the compromise is not agreed. The Minister of oil of Iran Bijan Zanganeh after the completion of the Algiers talks, said: “We are not going to freeze production… But some countries will have to reduce production”.

But the Algerian meeting still brought results. Was previously recorded for the total cartel production ceiling of 32.5–33 million barrels per day, and it is unimportant, but the reduction in current production. Strictly speaking, even before the Algiers meeting, in August, OPEC has reduced oil production compared to the July 23 thousand barrels per day to 33.24 million barrels a day. Now the decrease compared to the August level may be 240-740 thousand barrels.

But OPEC as a whole. Country quotas will be a battleground in the preparation and conducting the meeting of OPEC on November 30. In Algeria, specific figures were not called. But, according to unofficial statistics, Saudi Arabia proposed to reduce production to 442 thousand barrels per day compared to August, to 10.1 million barrels per day. Iran had recommended a quota of 3.7 million barrels per day, which means the growth of oil production amounting to 52 thousand barrels per day compared to the August level. Nigeria and Libya offered generally exempt from production cuts. Angola has been asked to cut production by 35 thousand barrels per day, Ecuador is 5 thousand barrels per day. Gabon recommended to reduce the total amount of oil production to 6 million barrels per day, and Indonesia by 16 thousand barrels per day. Iraq was proposed to reduce production of 135 thousand barrels per day compared to August, and Kuwait — by 87 thousand barrels per day. Qatar could reduce oil production by 5 thousand barrels per day, and the UAE by 155 thousand barrels per day.

All these threshold values are yet preliminary. Distribution, as already mentioned, is found.

What made Saudi Arabia to soften their stance and that seemed quite impossible to make a step forward to its geopolitical and that, probably, no less important, ideological enemy — Iran? Versions can be different. Starting with the one that it was a “reconnaissance in force”, in the sense that Riyadh was based on the principle that promise — not to marry, the goal was to probe Iran’s willingness to make concessions. If so, then attempt a particularly good call. Iran in its position has not yet changed, there well remember how I got through the sanctions siege. On the one hand, the belief in the vitality is not lost on the other — there is a determination to put sanctions behind us.

But perhaps everything is much more prosaic. It’s all in the money, or rather, their lack in the Saudi budget. Characteristically, the Saudi state has just faced a reduction in wages. Saving a little peculiar to Saudi Arabia, is obvious. Some observers interpretiruya recent steps to reduce budget expenditures of the Kingdom as the unbelief of Riyadh in the ultimate success of the operation “Refrigerator”. But in any case, Saudi Arabia is the second consecutive year faced with a significant budget deficit, forced to resort to foreign loans, there is a stagnation of the economy, diversification in the direction of emphasis on the financial sector until tangible results. It remains to intensify efforts to push the price of oil up.

The first step is done — the ceiling of OPEC production for the entire agreed upon. However, previously. However, the President of the OPEC conference, Minister of energy of Qatar, Mohammed bin Salem al-Sad had reason to at the end of the Algerian forum September 28 to state: “the Results of today’s OPEC meeting is historic as for the world community and international economy.”

Risks

To overestimate the achievements in Algeria, however, is not necessary.

First, did not overcome the differences between the key players of OPEC — Saudi Arabia and Iran. And there is no certainty that to rectify the situation before 30 November will succeed.

Second, the allocation of country quotas is the establishment of order in “the crow settlement. It is clear that not without communal squabbles, conflicting statements, turning into ultimatums. Besides the already established OPEC quota there is a long-known feature — they are seldom aged, each participant strives to achieve great financial results for himself. Most importantly (see point 1), must first negotiate Riyadh with Tehran.

Thirdly, today, after the ousting from the market of shale aliens from the United States OPEC rightly feels himself the Supreme arbiter of the oil market. But this is only one side of the coin. The second is that OPEC is reasonably fears that in case of a decision to freeze or reduction in oil production will benefit third-party producers.

Russia these concerns are not dispels. On September 27, ahead of schedule, leaving the Algerian forum, energy Minister Alexander Novak said that the most suitable option for RF — freeze oil production at the level of September, reaching its historical maximum in 11 million barrels per day. This is a sign that Novak, despite the agreement of Russia with Saudi Arabia on joint actions to maintain stability in the oil market and ensure a sustainable level of investment in the long term, in the long freeze of production is not believe. After all, the statement that against the background of freezing and even production cuts in OPEC countries, Russia intends to keep its historical record in terms of daily production, which is unlikely to hold, like a red rag to an enraged bull.

On the other hand, this is a baseline negotiating position of Russia. OPEC and it was also solved in Algeria intends to develop a constant format of consultations with oil producing countries outside the organization “to ensure market balance”. OPEC was created in the high-level Committee, which will offer individual production levels for OPEC, at the same time “will develop a format for high-level consultations between the OPEC countries and countries outside it, to recognize threats to the oil market and balance it on a permanent basis”, — stated in the document, which was read at a press conference following the meeting.

Prices

And as happened in Algeria is reflected in the very oil market? There in full swinging swing. 27 September, prices lost over 3% due to pessimistic estimates of the outcome of the Algiers forum. On 28 September, when it became known that Algeria could suddenly agree on a common ceiling of production, prices have soared nearly 6% to pushed messages of the American Institute of oil (API) about unexpected reduction of stocks of “black gold” in the United States. 29 Sep prices moved, that is, “to corrective decline by 0.5%. The Algerian solution “really caught the market by surprise — the prices have risen sharply, and now the markets took a pause to think,” commented the dynamics of trading Reuters analyst OptionsXpress in Sydney Ben Le Brun (Ben Le Brun).

This is the instant photo auction. What’s next? Opinions as usual differ. The mainstream is that we should expect some growth in prices of oil, but he will not. First of all, because of these risks of failure to reach final agreements on the freezing of oil.

If 30 November will be followed by the signing of an agreement on quotas in the framework of a total freeze of the production, the majority of forecasters are inclined to think that the price will surely exceed $50 per barrel, will reach $55-60 at the beginning of next year.

The picture of goodness. But we should not forget that the train of shale production is still on the siding. OPEC ruled the oil ball, while oil prices so low that shale extraction unprofitable. This situation can change improvement and cheapening of oil shale production and rising world prices. Threshold value considered to be $50 a barrel, at that price, Wake up dormant oil shale projects. There are statistics, according to which oil production in the US has, however, yet almost imperceptibly, but begins to rise as the number of drilling rigs.

The imbalance of supply and demand in the oil market there. The constraint of OPEC production immediately, but will restore balance. Prices will rise, but their growth may call for new market suppliers, and prices will continue to fall. So the market works.

But yet ahead of the price gap.

The Russian economy is still lived very condratesti cycle: from a period of high prices to times of low. At this time, high prices will not be their limiters are known. But prices still will grow. Russia can receive a gentle adjustment model of the economy.

Sanctions . Chronicle of events
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