BAKU, Azerbaijan, March 6
By Leman Zeynalova – Trend:
Oil markets are skeptical about Russia's position on the new recommendations of OPEC regarding the oil output cut deal, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.
“The OPEC Ministerial Conference took an important decision in Vienna on 5 March. The organization decided to recommend to the OPEC and non-OPEC Ministerial Meeting on 6 March a production cut of 1.5 million barrels per day until the end of June 2020, of which 1 million b/d for OPEC and 500,000 b/d for the 10 non-OPEC countries which are cooperating with OPEC since the end of 2016. This 1.5 million b/d volume is higher than the anticipations. Until some days ago a 1 million b/d cut was considered,” said the expert.
Perrin believes that this is a really strong announcement but OPEC is no longer the only decision-maker.
“Oil markets are skeptical about Russia's position. This country is not very keen to reduce its production once more and would prefer the extension until the end of 2020 of previous output cuts decided by OPEC and non-OPEC countries in December 2019 for the first quarter of 2020 (OPEC's proposal also includes the extension of these previous cuts until end 2020). Due to this Russian reluctance, oil prices go on falling. The price of North Sea Brent has just fallen below $48 per barrel on ICE Futures in London, which is a very worrying trend for all oil producers and exporters,” he explained.
Perrin thinks that Russia will not block an agreement around a 1.5 million b/d production cut but there are some serious doubts about the implementation of this cut if it is agreed in Vienna.
“OPEC is aware of this risk and this is why the organization proposed to bear two-thirds of the proposed output reduction (1 million b/d out of 1.5 million b/d). It means that Russia would have to cut its production by a rather small volume. My guess is that Russia will not break the dynamics of OPEC/non-OPEC cooperation and will give his green light to this proposed agreement,” noted the expert.
He recalled that the 10 non-OPEC countries also include Azerbaijan and Kazakhstan and there are now 13 OPEC countries and no longer 14 as previously: Ecuador left OPEC at the beginning of 2020.
“Russia and Saudi Arabia are respectively the second-largest and third-largest oil producers behind the United States. It is the reason why the oil markets follow very closely the statements and the actions of these two key countries. U.S. oil production is on a rising trend since 2008 thanks to this country's very large potential of unconventional oil. The U.S. is not participating in any attempts to regulate the oil market and its oil production will go on rising in 2020, which is a big problem for OPEC and non-OPEC countries meeting in Vienna,” said Perrin.
Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend that the OPEC decision is a strong statement but will need to be supported by Russia and other non OPEC. If the latter is not supporting, OPEC will be confronted by hard choices.
"Saudi Arabia and maybe UAE or Kuwait will need to cut more. This will not be easy and hard for their own economies. Current financials of most OPEC producers are already under pressure," he said.
The expert noted that compliance will be an issue as some OPEC producers are already exempted or face sanctions. "In the end Saudi Arabia, UAE and Kuwait will have to bear the brunt. Libya wants to start producing more while Iraq is a loose cannon."
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