Analyst Yushkov: “If Russia decides to suspend its participation in the organization, then OPEC+ will definitely cease to exist.”
The latest OPEC+ meeting seemed to end successfully: alliance members extended the deal to curb production capacity until October 2024. Then the countries included in the organization will move on to increasing production. However, it is at this stage, as experts warn, that serious disagreements may occur that will lead to a complete split of the cartel. Western experts are already claiming that OPEC+ has exhausted its ability to influence the global oil market and has lost its ability to strengthen the prices of “black gold.” Leading analyst of the National Energy Security Fund Igor Yushkov said how objective such forecasts are.
— At first glance, one can agree with this opinion. Initially, the OPEC+ organization was created with the aim of both limiting the production of the main participants in the global commodity market and reducing excess export volumes of oil, which led to a decrease in stock quotes for “black gold”. Each of the participants in the new alliance, formed in 2016, has committed to cutting production capacity at a proportional level. Leading producing states such as Saudi Arabia and Russia agreed to larger concessions: the capacity of the two leaders of the organization was reduced in volume — up to 300 thousand barrels per day. Outsiders of the international cartel, for example, Sudan and Brunei, the “entrance ticket” to the alliance was “sold” much cheaper — for 20-30 thousand “barrels” of daily production reduction.
— Without a doubt. At the beginning of 2016, the price of a barrel dropped to $27, and in December of the same year its cost rose to $46. Obviously, such a low bar could not yet be compared with the previous quotes, which reached $214, but no one could argue with the positive changes from the deal with an expanded circle of oil-producing partners. Therefore, the terms of the agreement were extended until the end of 2018. The result was not long in coming. The average cost of a “barrel” for that year was almost $70, and at the peak of the price increase — in October of that year — prices exceeded the $85 level.
— Our country did not have to regret joining the alliance. If in 2016 oil revenues of the Russian budget fell by about 18%, then in 2017 the size of the corresponding receipts, according to the Federal Customs Service, increased by 27% — to $38.5 billion. Undoubtedly, the total export of Russian liquid hydrocarbons decreased (by 0.8%), but the amounts received from foreign buyers due to the stabilization of quotes leveled out the physical volumes of deliveries to the world market.
— The initial parameters of the OPEC+ deal, determined at a meeting in Vienna in November 2016, were adjusted several times, but the basis of the agreement on limiting production was preserved. Average Brent quotes varied between $65-71, which suited Russia quite well, whose budget was then formed based on $40 per barrel.
Certain difficulties arose in 2019-2020, when the coronavirus pandemic swept the entire world, which led to a reduction in industrial production, and consequently to a decrease in energy consumption. Even then, industry participants began to predict that OPEC+ had only a few months left to survive. The leading members of the alliance, primarily Saudi Arabia, announced the rapid expansion of supplies of “black gold” to international buyers. Riyadh decided to maintain export earnings “not by skill, but by numbers.” However, at an emergency meeting convened in April 2020, all 23 delegates of the organization unanimously voted to continue the policy of limiting the extraction of raw materials and agreed on a schedule for reducing production capacity. The effect of the alliance's emergency decision was not achieved in one day — the price of June futures fell to $20, but closer to mid-summer, quotes returned to $60 per barrel.
— Yes, and absolutely legally. International trade activity has restored blood circulation — global economic growth has already reached 4.7% in 2021. On the one hand, such an indicator cannot be considered a full-fledged success, since the growth did not cover the losses of the previous year and a half. On the other hand, changes in the financial situation of buyers allowed hydrocarbon exporters to move towards accelerating production dynamics. For about a year, alliance members have been easing production restrictions. At first, such castling did not interfere with quotes and the price of Brent again rose to around $120 per barrel, but then prices began to fall again and in October 2022, OPEC+ countries agreed on the largest production reduction in two years — by 2 million barrels at once.
— It helped, but I can’t say that it was dramatic. From August 2023 to this day, a barrel of Brent has been trading in the range of $75-90. There are no noticeable anti-records, but the $100 level still remains an insurmountable barrier. Let us note that over the past period of time, OPEC+, in fact, has only managed to keep the cost of a barrel within the fixed price range. Even despite additional measures being taken. Both during 2023 and in the first quarter of 2024, some representatives of the largest oil block in history were repeatedly forced to voluntarily reduce production. In total, the alliance countries, including Russia, have cut daily production by 2.2 million barrels, however, it appears that by December the average annual cost of raw materials will not exceed current levels.
— For now, the position on voluntary production reduction has been extended until September. The official reason for returning to increasing the production of raw materials after the expiration of this period is forecasts of a rapid increase in demand for energy resources. This development of the trade balance is evidenced by the majority of market participants. According to OPEC Secretary General Haitham al-Ghais, this year the purchasing power of raw material importers will increase by the same 2.2 million barrels. There will be no further reasons for a drop in demand. According to Russian Deputy Prime Minister Alexander Novak, only a transition to increasing production within the framework of OPEC+ will make it possible to compensate for a possible shortage of hydrocarbons.
— It's hard to say for sure. There are many disagreements within OPEC+. Russia and Saudi Arabia agree to maintain their own production levels for a few more months, while Venezuela, Iraq and Libya are exempt from such restrictions. Moreover, as Western publications reported on the eve of the last meeting of the alliance, the United Arab Emirates will try to sabotage the extension of quotas for the production of raw materials, since it plans to increase production without focusing on its partners in the organization. UAE Energy Minister Suhail Mohamed Al Mazrouei disavowed such information, however, confirmed that significant external pressure continues to be exerted on the alliance members.
It must be said that today, according to Goldman Sachs, OPEC+ members have accumulated about 6.5 million barrels per day of free production capacity. From October 2024, when the organization begins to increase production, each of the cartel members will try to return their potential reserves to operation in maximum volumes. Everyone will begin to pull the blanket over themselves and reaching a compromise will not be easy. Large global producers who are not members of OPEC+ are adding fuel to the fire. In particular, the USA and Canada, which can increase production, relying solely on their own interests and not listening to the advice of other producers of raw materials. In this case, prices will behave extremely unpredictably.
One thing can be said with complete confidence: Russia continues to play one of the most important roles in the life of the oil alliance, and if our country decides to suspend its participation in the organization, then OPEC+ will definitely cease to exist.