OPEC+ countries set out to cut production to a record level: what is the benefit of Russia

Sevestrum of oil capacities will make it possible to earn in the conditions of sanctions

Oil prices continue to decline: now they give no more than $85 per barrel, although in the summer the cost of a “barrel” confidently exceeded $100. The largest producers from the OPEC + alliance intend to prevent a further collapse in quotations at a meeting on October 5. According to MK experts, the main producing states of the planet will agree to seriously cut their own capacities in order to prevent a sharp collapse in the cost of a barrel.

The current OPEC+ summit definitely goes beyond the traditional monthly meetings of the alliance. For the first time since March 2020, delegates are going to hold a face-to-face meeting at their headquarters in Vienna (after the announcement of the coronavirus pandemic, conferences were held exclusively remotely): first, the technical and monitoring committees of the organization should present their views on the energy market of the planet, and the final results of the negotiations will be announced after meetings of energy ministers of OPEC+ countries, including Russia.

As Reuters notes, if until recently the OPEC + members mainly made decisions to expose the production of “black gold” in connection with the stabilization of hydrocarbon prices and an increase in demand for raw materials in the world, now they will have to decide on a serious limitation of production due to a decrease in energy quotes. The option of a daily reduction in production by 1 million barrels is being considered (as they say, at the suggestion of the Russian side), which will be the largest reduction since 2020, when the alliance reduced the extraction of minerals by 10 million barrels against the background of the pandemic. Now, as stock players fear, due to the tightening of Western sanctions, the export of “black gold” from Russia at the end of 2022 may fall even more.

Experts told MK about what agreements can be expected from the upcoming OPEC + summit, how they will affect oil prices and how they will affect Russian energy interests.

Vladimir CHERNOV, analyst at Freedom Finance Global:

“The decision to reduce production by OPEC + countries immediately by 1 million barrels per day will lead to the fact that the countries of the alliance will have the opportunity to increase production if necessary in the future, that is, to again influence world prices. Due to lower production volumes, the cost price will fall slightly, but prices are unlikely to decline. An increase in production volumes by OPEC+ countries is now impossible, since many producers do not have enough free capacity to increase production and they need to invest in exploration and production. The decline in production will lead to an increase in the cost of oil, which plays into the hands of absolutely all world exporters of “black gold”. Due to the decrease in supplies under the OPEC + deal, the Russian budget may miss a significant amount of financial resources.

Against the backdrop of a decline in production by OPEC+ countries, by the end of the year, world prices for Brent oil are predicted to rise to $100 per barrel. True, prices may also go down against the backdrop of reduced demand from the world’s main importer – China. Due to the new zero-tolerance policy for the incidence of covid, new lockdowns may follow in the fall in China, which will stop industrial production. Next year, Brent crude is projected to be above $90 a barrel as OPEC+ members will defend this price level by reducing supply in the market.”

Nikolay VAVILOV, specialist of the Strategic Research Department at Total Research:

“To generate more income and maintain the level of export earnings, OPEC + producing countries benefit from prices of $ 90-100 per barrel. The 1 million barrel per day cut to this end would be the biggest loss the West has suffered from the pandemic and sanctions, and will definitely drive up energy prices. The cost of oil above $90 per barrel is beneficial for our country. Such a limit will allow domestic oilmen to earn much more in the face of sanctions that limit the customer market. It will also hit the US and Europe, which are suffering from high energy prices, which is reflected in rising inflation and causing their central banks to raise interest rates.”

Dmitry ALEKSANDROV, Head of Analytical Research Department, IVA Partners Investment Company:

“A significant reduction in production now would be to the advantage of all producing countries. At the same time, Russia, indeed, could take on a significant part of the planned reduction in excess of the standard quota. Deliveries to the domestic market could increase, but in the context of economic contraction due to reduced demand and investment, there will be nowhere to redirect large volumes: we will have to think about introducing deep processing and creating an end product of mass consumption that replaces external supplies. In the coming quarters, it will become clear what will prevail: stagflation or recession, over which the realization of potential geopolitical risks hangs. The fall and rise in energy prices by 30% or more in this case are quite possible to an equal extent.”