In an effort to reduce a global crude oil glut and boost prices,
Members of the Organization of Petroleum Exporting Countries and
non-OPEC countries, especially Russia, reportedly decided on May 25 to
extend cuts in oil production by 1.8 million barrels per day by nine
months to March 2018.
However, oil prices dropped as the market had been hoping oil
producers could reach a last-minute deal to deepen the cuts or extend
them further, until mid-2018, Reuters reported. In New York, the price
of crude fell to $48.75 per barrel, a fall more than 5% while the price
of Brent in London was at 51,41, falling by 4.71%.
An OPEC and non-OPEC agreement in December to cut production has
helped to push oil back above $50 a barrel in 2017. Low oil prices have
affected the economies of many oil-producing countries whose budgets
depend on oil revenues, including Saudi Arabia.
This year’s rise in oil prices, however, has prompted US shale
producers to restart or boost production thus contributing to the global
oil glut. “We considered various scenarios, from six to nine to 12
months, and we even considered options for a higher cut. But all
indications discovered that a nine-month extension is the optimum,”
Saudi Energy Minister
Khalid al-Falih said, telling a
press conference that he was confident oil prices would recover as
global inventories shrink, including because of declining Saudi exports
to the US, according to Reuters.
Chris Weafer, co-founder of Macro-Advisory in
Moscow, wrote in a note to investors on May 25 that the ruble collapse
saved the Russian oil sector. Costs are largely in rubles while revenues
remained in US dollars, Weafer explained, adding that sanctions and the
lower oil price also pushed oil companies to reduce costs and improve
operational efficiency.
The Russian government’s Fiscal Plan aims to reduce reliance, and
vulnerability, to oil. The target is to cut the breakeven oil price to
$40 per barrel by 2020 and to reduce oil and gas taxes to 35% of the
budget total. In 2013, the budget needed $115 per barrel to balance and
oil and gas taxes exceed 50% of the total, Weafer wrote.
Output has grown despite sanctions and low oil price, Weafer wrote.
In August 2014, the average daily output was 10.84 million barrels. At
last November’s pre-OPEC deal peak, the daily average was 11.58 million
barrels.
Russia’s cooperation with OPEC has improved. Russia has cut 210,000
barrels day of the 300,000 barrels day agreed with OPEC, according to
Weafer. The oil majors, initially opposed to the deal, now support an
extension into 2018.
Energy and politics are aligned, Weafer wrote, noting that one of the
Kremlin’s core priorities is to diversify political, trade and
investment relationships.
“Many of the political deals will likely involve energy deals to
cement the closer ties. This was the case recently with Qatar and
previously with India and China,” wrote, adding that he expects to see
more such deals with Japan and Saudi Arabia, for example, as Moscow’s
ties with those countries improve.
Localisation in the oil sector is about national security and
building a domestic capability in equipment supply and services, Weafer
wrote.
He also noted that Russian oil majors are looking for diversification
and expansion in international markets. Many will be via joint ventures
with international companies and that too will open up the possibility
of joint ventures with the Russian partner in the domestic market.
https://www.neweurope.eu/article/opec-non-opec-extend-oil-cut-cooperation-russia-improves/