By Swann Bigot, legal expert and author (@AssasParis2), April 19, 2020
View on Moscow City – October 2017
The OPEC + agreement announced on April 9 and confirmed on April 12 which aims at reducing the global oil production does not yet have a direct impact on the market, said Dmitry Peskov, the press secretary of the Russian president Vladimir Putin, during a press conference on April 17.
Answering the question of whether Moscow is talking about an additional reduction in crude production due to the on-going decline in oil prices, the official said :
“It will be necessary to technologically begin its implementation. Some more time is needed, the effect will definitely come”
According to the OPEC + deal, Russia must reduce oil production in May-June 2020 by 2.5 million barrels. However, Russian oil companies would disagree about the cut of volumes among themselves. Negotiations would be on-going.
Negotiations among companies
The press agency Interfax revealed that according to calculations based on February 2020 data excluding condensate, Rosneft’s share in Russian oil production alone is about 36%, LUKOIL’s share is 16%, Surgutneftegas’s share is 12%, Gazprom Neft’s share is 7.3%, Tatneft holds a 6% share, Bashneft’s share amounts to 3.6%, Slavneft holds a 2.6% share, Russneft’s share is 1.3%, and Neftegazholding’s share is 0.4%.
Given that all companies will reduce their output in proportion to their contribution to the total oil production in Russia, the state-owned Rosneft would have to cut daily production by 600–660 thousand barrels and the private company LUKOIL by 240–280 thousand barrels. Surgutneftegaz would have to reduce the oil daily output by 210 thousand bpd, Gazprom Neft – by 130 thousand bpd, Tatneft – by 100 thousand bpd, Bashneft – by 65 thousand bpd, Slavneft – by 47 thousand bpd, Russneft – by 25 thousand bpd and Neftegazholding – by 7 thousand bpd.
The fact is that any proportional reduction in oil output threatens to halt operations at some oil fields. Restarting such operations would be very expensive or even impossible in some cases. This situation fuels the disagreement between Russian oil companies about the distribution of reduction. Representatives of the Russian Federal Government are still in negotiations with the national oil companies.
A historic reduction
On April 12, OPEC member States, led by Saudi Arabia and Russia, which are among the largest oil producers, finalized their agreement to reduce global oil production by a total of 9.7 million barrels per day. Intense negotiations have been going on for three days.
OPEC + member states confirmed the deal announced on April 9 after talks with 23 countries, to cut global oil output in an attempt to stabilize the market amid coronavirus outbreak and collapse of the oil prices since early March 2020.
Under this historic agreement, the major oil producers will cut their output by 9.7 million barrels per day from 1st May 2020 until 30 June 2020.
OPEC + members expect that from 1st May 2020 the global crude oil output will decline from the current level by 19 million barrels per day. This scenario will be possible taking into account other oil producers, including the reductions made by the United States, Canada and Norway.
The Kremlin said on April 12 that the agreement avoided chaos in the global oil market. The US President Donald Trump called the OPEC + deal historic.
Oil prices are falling
The agreement reducing the global oil output may benefit Moscow if the price of Russian oil rises from the ultra-low levels that it was in March 2020. However, on Tuesday, April 14, Urals oil fell by USD 3.59, to USD 16.71 per barrel.
Other oil prices are continuing their fall. Indeed, on April 17, the Brent crude price was 28.08 USD/bbl and the WTI crude oil price was 18.27 USD/bbl, while on April 9, the Brent crude price was 31.48 USD/bbl and the WTI crude oil price was 22.76 USD/bbl. The same day, the price of OPEC basket of thirteen crudes stood at 21.19 USD/bbl.
The market is now crushed by an oversupply of crude amid falling demand due to the global coronavirus pandemics which has stopped economies around the world.
New measures are possible
If the oil market situation will not stabilize in the coming weeks, additional measures may be taken by oil producing countries. This possibility was confirmed by the Russian Energy Minister Alexander Novak and the Saudi Arabian Energy Minister Prince Abdul Aziz Bin Salman, who held phone talks on this issue on April 16. Both Ministers expressed the commitment of Russia and Saudi Arabia to the implementation of crude output reductions and agreed to monitor the oil market.
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© Copyright 2020 – Swann Bigot, legal expert and author, for the platform Eurasia Business News