Got so hot

Friendship of Russia with Iran and Venezuela were threatened, and in the Organization of countries-exporters of oil (OPEC) is brewing a split. The further fate of the prisoner in 2016, of the agreement between the oil producing countries to reduce output should be decided in the coming days in Vienna. For nearly two years, OPEC members and States not members of the cartel, demonstrated a striking solidarity and commitment to the deal, but now they were divided into two camps. Causes and consequences of the global battle for oil — the material “the Tape.ru”.

the historic meeting 10 December 2016 in the Austrian capital 24 oil-producing powers, contrary to the views of skeptics, managed sign an agreement on joint reduction of production of raw materials. This was a necessary measure for the sake of the oil market that experienced a shock due to the collapse of prices in 2014-2016. If at the beginning of the summer of 2014, Brent crude was trading at a price of $ 115 per barrel by the beginning of 2016 its value collapsed by more than four times.

In the end the parties agreed to reduce production a total of 1.8 million barrels per day from the level of October 2016, which is estimated at of 33.24 million barrels per day. Russia, in particular, had to cut production by 300 thousand barrels a day. The participants in the transaction OPEC+ then expressed confidence that it will accelerate the rebalancing of the market, to attract investment in the sector, and to improve the situation in the world economy as a whole. As a result, the agreement has helped to raise the price of oil below $ 30 per barrel in early 2016, before the current $ 75 per barrel. In may its price even punched the mark of 80 dollars per barrel for the first time since November of 2014.

However, the bad news is that sooner or later from the transaction have to come out, and this will inevitably pose a number of conflicts. Consistently high prices for raw materials are pushing major oil producers — Russia and Saudi Arabia — to the idea that they are losing money, artificially understating the volume of production. Now they want to sell more, and the surrounding circumstances only play in the matter at hand.

Moscow and Riyadh offer to increase production in the third quarter of 2018 by 1.5 million barrels per day from the current level since July 1. To the question — why? — there are at least two iron argument — the decline of oil production in Venezuela due to the protracted economic crisis and potential departure from the market part of Iranian oil because of U.S. sanctions. Thus, the key players want to compensate for the loss in the market. Quotas would be distributed in proportion to: a million a day, OPEC countries and 250 thousand in a day to Russia.

For Moscow and Riyadh scheme seems to be very profitable, it is absolutely risk-free for the whole market and the world economy as a whole. Because the volume of oil production is not changing, only the balance of power. As a result, Russia and Saudi Arabia will benefit from both increased production volumes and from the continued gradual increase in prices for raw materials.

On said energy Minister Alexander Novak, Russia, of course, beneficial to the high price of oil, but a stable price is more important. “The oil industry is long — term. We benefit from less volatility. I can’t say that we are interested in the growth of prices up to 100 dollars for barrel and above. Because everyone will start to produce, and the prices fall again. We are more important than stability,” he said.

However, agree with such a scenario was not all. He was particularly angered Iran, which was later joined by Iraq and Venezuela. In General the discontent of some participants of the transaction is clear. According to according International energy Agency (IEA), the ability to dramatically increase production have now only Russia, Saudi Arabia, UAE and Kuwait. It turns out that other oil-producing countries remain out of work and will be forced to lose market share.

For Iran here not the last role played and geopolitical contradictions, and the fact that the possible increase in quotas would play into the hands of sworn enemy — Washington, accuses OPEC artificially inflating oil prices. Despite the fact that expensive oil profitable us shale companies, the current market situation has caused an explosive growth in gasoline prices in the United States they reached three-year high. In this regard, the President Donald trump addressed to request OPEC to increase production by a million barrels a day.

it is Worth noting that the US is partly themselves and provoked a situation of commodity shortages, terminating may 8 nuclear deal with Iran and returning sanctions against one of the largest oil exporters in the world. For estimates experts, the volume of Iran’s exports, which now reaches two million barrels per day, will be reduced due to sanctions for 500 thousand. Of course, neither of which increase oil production in these conditions is not out of the question so the intention of Iran to veto Russian-Saudi initiative is quite natural. “OPEC is not an organization that needs to receive instructions from the President trump and follow them,” the said the Minister of oil of Iran Bijan Zanganeh.

a Desperate resistance to the increase of quotas for oil production also has Venezuela, mired in a severe economic crisis. Back in February, Caracas has stated that “vitally” interested in the extension of the agreement OPEC+ for a long time, at least five years. “Our economy depends on oil for 97 percent. We have monophosphatase economies, where dependence on oil is very high. It is vital that the price remained at a high level,” said Venezuela’s Ambassador to Russia Carlos Faria Tortosa.

estimates S&P Global Platts, the oil production in Venezuela in April stood at 1.41 million barrels per day, which is half a million lower than a year earlier and in may it decreased by another 50 thousand. This is the lowest figure over the past 30 years, with the exception of the national strike in 2002-2003, but this is not the limit. The IEA estimates that by year end the economy’s productive capacity will fall by hundreds of thousands of barrels per day, while world demand for oil will grow by 1.3 million barrels a day.

Ally of Venezuela and Iran to counterbalance Russia and Saudi Arabia gave Iraq. And although he is not so categorical, but not explicitly configured on an increase in quotas. In January, Iraqi Prime Minister Haidar al-Abadi said that the country is fully satisfied with the current oil prices and there is no need to change anything. Prior to the meeting in Vienna the Minister of oil of Iraq Jabbar al-Laibi expressed hope that the summit will come to a consensus. On the question whether his country to increase oil production, he said that Iraq has not yet considered such a scenario.

overall, despite differences in large-scale conflict is not in anyone’s interest, and even Iran have softened their stance and made an appointment with Alexander Novak before the meeting. Now, according to sources, OPEC members discuss a compromise agreement. In accordance with this scenario in the next few months is expected to increase oil production in the range from 300 thousand to 600 thousand barrels per day. The proportional increase in the quota of Russia in this case can range from 50 thousand to 150 thousand barrels a day. And while this seems the most appropriate plan.

If the parties to the transaction abandon the idea of increasing oil production, the market there will be significant deficit that threatens to further price increases, and this in turn will create risks for the global economy. according the IEA, in may, OPEC countries have fulfilled their obligations on the reduction of production at 158 percent of severely declining production in Venezuela and clashes in Libya, which production has declined by about 400 thousand barrels per day.

In the opposite situation, if Moscow and Riyadh will go against the majority of the parties to the agreement (a sharp increase in production do not support even Kuwait and Oman), other countries will have to increase production. In this case, resulting in the market surplus could raise up the script 2015-2016.

a Series of meetings of representatives of the OPEC and the parties to the agreement OPEC+ will be held June 22-23 in Vienna. It is expected that it will be attended by Ministers from 23 countries. Yet at issue is Iran. Experts are inclined to believe that the summit participants will vote for the above-mentioned compromise, and the cost of oil continues to fall smoothly to the background of statements by representatives of OPEC.