The secret of oil quotas: what is OPEC + seeking in the global energy market

The Russian government immediately approved the deal, as “the new decision was made to provide long-term guidance for the oil market, maintain its stability and create long-term predictability.” It is also confirmed that “Russia will adjust its oil production to 9.828 million bpd (now 10.478 million bpd) and extend its voluntary cut of 500 thousand bpd until the end of December 2024.”

However, the participants in the Vienna meeting made many contradictory statements that do not clarify how much production will have to be reduced next year.

Thus, Russian Deputy Prime Minister Alexander Novak claims that “the total reduction in production by OPEC+ countries by the end of 2024 will amount to 3.66 million barrels per day from the level of October 2022.” However, this would be understandable for analysis if we were talking about the current year – 2023.

Let us recall the course of dramatic events in the world oil market. In November 2016, 10 more countries, led by Russia, joined OPEC. OPEC+ is born. First of all, the new international organization launched a series of agreed-upon cuts in oil production in 2017-2019, respectively, by 1.7 million barrels per day, then another 1.2 million (the so-called Vienna Agreement). The event turned out to be extraordinary. Until that time, Riyadh, under pressure from Washington, only played for a fall, which led to a collapse in world oil prices – both in the mid-1980s and in 2014-2015. But by 2016, it turned out that in order to balance the Saudi state budget, a price of at least $70 per barrel is needed (by the way, almost the same price – $70.1 per barrel – is included in the Russian budget-2023). Therefore, Riyadh turned its pricing policy towards Moscow, adhering to it until now.

But in March 2020, disaster struck. The OPEC Technical Committee proposed to cut production by an additional 600,000 bpd in the second quarter. Moscow considered it unnecessary. As a result, all agreements to reduce production were disavowed. The situation was exacerbated by pandemic lockdowns. And in April-May, a number of Russian contracts were closed at a price of $14 per barrel. The parties immediately changed their minds and on April 12 agreed, within the framework of OPEC +, to reduce production immediately by 9.7 million barrels per day during May-June 2020. Subsequently, oil production was gradually increased. By September 1, 2022, everything was back to normal. But then oil after the high cost in the spring of last year again went down.

OPEC+ responded on the fly. In September, overall production quotas were reduced by 100,000 barrels to begin with. And on October 5, at a ministerial meeting in Vienna, they agreed to reduce quotas from November 1, 2022 and for the whole of 2023 by 2 million barrels. True, the reduction by 1 million was “paper”. Many countries, including Russia, were already falling short of their quota ceiling. And therefore, in reality, the actual production was not reduced. But Saudi Arabia and the UAE ensured a drop in real production by 1 million barrels per day.

However, prices continued to decline, which was especially painful for the Russian fuel and energy complex and the state budget. In January, they missed 52 billion oil and gas rubles, in February twice as much. Even in May, after the situation had somewhat improved, it was 33 billion rubles.

This was affected not only by the reduction in the price of the reference grade Brent, but also by Western sanctions, including the EU embargo and the price ceiling of the G7 and the EU. Discounts on Urals reached $35–36 per barrel in winter. In February, Deputy Prime Minister Alexander Novak had to announce a voluntary unilateral reduction in production by 500 thousand barrels per day, starting from March 1 to June, and then until the end of 2023.

Novak claimed at the end of March that the decrease in oil production by the indicated amount had already been made. In early May, he confirmed this information. However, both the opponent of the oil-producing countries, the International Energy Agency (IEA), and OPEC questioned it.

The problem is, exactly from what level did we cut production? Novak explained that since February. But what are its actual volumes?

It would be logical to adjust the quota agreed within the framework of OPEC + – 10.478 million barrels per day. But the domestic oil industry does not produce so much crude oil in reality. Including gas condensate, according to the IEA, there were more than 11 million barrels in February. But how much crude oil was produced in February is not known for certain, since neither the Ministry of Energy nor the Federal State Statistics Service have published official figures in this regard since the beginning of the NWO.

Alexander Novak in February spoke about 9.8-9.9 million barrels. OPEC estimated our production at 10 million. In April-May, the IEA first claimed that Russia reduced production by only 270 thousand barrels, and OPEC – by 300 thousand. Based on these estimates, publications in American business publications claimed that in Riyadh extremely dissatisfied with Moscow’s violation of its own obligations. Moreover, the flaw was allegedly revealed when 9 OPEC+ countries, in addition to Russia, led by Saudi Arabia, on April 2 also voluntarily announced a reduction in production by 1.16 million barrels from May 1 until the end of the year.

The Saudis did not like the reports of the Western media, which are actually trying to push the foreheads of the OPEC + participants and thereby manipulate the market in their favor, and reporters from a number of American agencies and newspapers were not invited to the ministerial meeting on June 4.

But it still turns out that by June 4, all recent cuts have reached 3.66 million per day. But Novak says that figure will continue into 2024. Whereas in Vienna they agreed to reduce daily quotas next year by almost 1.4 million barrels. And the Russian reduction is counted from the country quota reduced to 9.828 million from 10.478 million barrels. As a result, in 2024 we should produce not 9.3 million barrels per day, which is about 100 thousand daily “barrels” less than the February level mentioned by Novak. It is no coincidence that experts believe that next year the entire OPEC + will pump oil less by 4.6 million barrels (instead of 3.66 million), and Russia — by all 650 thousand barrels.

However, many problems can be solved by Saudi Arabia, whose oil minister, Prince Abdulaziz bin Salman, during the Vienna meeting said that his country voluntarily reduces production by another 1 million barrels from July 1 (as a result, by 1.5 million, taking into account obligations from 2 April). So far for a month. But it can be extended until next year. Several other countries are ready to support the Saudis.

“It will be one million barrels of oil. Not tobacco, not pancakes or anything else,” Saudi Energy Minister Prince Abdulaziz bin Salman said at a press conference following the meeting. The participants of the ministerial meeting perceived this broad gesture as a “Saudi candy”.

As for Russia, the OPEC+ monitoring committee will still clarify its production level in June, since due to sanctions there are difficulties in communicating with secondary sources of information. However, bin Salman clarified that no matter what the final figure for Russia’s production in February 2023 is, the Russian Federation has fulfilled and will continue to fulfill its obligations. “I have no choice but to trust them, because we have seen that they fulfill their promise,” the prince admitted.

The Saudi minister’s latest statement is especially costly. And this, in essence, is the main positive outcome of the June 4 oil summit in Vienna for us. Prices have reacted sluggishly so far. And the meeting participants themselves are more hopeful only for the stabilization of the situation. But Riyadh did not quarrel with Moscow. What is important for both capitals on the eve of the August BRICS summit in South Africa, where Saudi Arabia requested permission to officially join this organization, including in order to achieve the establishment in the alliance of some kind of new world currency that can rely on oil quotes. And then those who propose to call the currency of the global South “brick” will turn out to be right. They can hit the dollar.