At a meeting in Vienna on November 30, they agreed to extend this deal for nine months - until the end of 2018. Journalists learned about this from Iraqi Oil Minister Jabbar al-Laibi. Russian Energy Minister Alexander Novak, quoted by RIA Novosti, confirmed that Russian oil companies agree with this decision.

The progress of the agreement and the market situation will be discussed at the ministerial meeting of OPEC+ countries in June. Meanwhile, on the eve of the meeting, several scenarios were discussed, but analysts were correct in their forecasts as to which of them was the most likely.

Four scenarios

Bloomberg reported on four possible scenarios for the OPEC summit and 10 countries outside the oil cartel, including Russia. Most experts, including those from Bloomberg, were inclined to think that a decision would be made in Vienna to extend the agreement, which ends at the end of March next year, until the end of 2018. But despite popular belief, the intrigue will remain until late in the evening, the agency warned, because there is never complete confidence with OPEC. In addition, in agreements of this kind, numerous nuances always play a big role. This means that everything can change even at the very last minute.

The scenario for an agreement to limit oil production until the end of 2018 was written and pushed through by Saudi Arabia, the informal leader of OPEC. There was also a more flexible scenario: the agreement would be extended for three months, with the possibility of a further extension at the June summit for six months. That is, again until the end of 2018.

Some experts considered it possible that a formally new agreement could emerge, under which production would be limited for 12 months and would come into force on January 1, 2018. This option made it possible, at least potentially, to include as many non-OPEC oil-producing countries as possible into the agreement. Now, let us remind you, there are 10 of them. This is perhaps the most “bullish” option.

And finally, the emergence of an agreement with the possibility of withdrawal from it could not be ruled out. Under this scenario, restrictions would remain in effect until the end of 2018, but some form of “soft landing” could be provided for the oil market after a return to a balance between supply and demand.

Deadly agreement

Participants in the summit in Vienna, which will attract the attention of the entire planet, preferred to remain silent about the prospects for reaching a compromise. In particular, the energy ministers of Saudi Arabia and the United Arab Emirates: Khalid al-Falih and Suheil al-Mazroui, respectively, simply did not answer this question.

Marzui, for example, told reporters that the meeting in Vienna will not be easy, although he is optimistic and believes in extending the agreement. By the way, the chief Emirati oilman refused to comment on Moscow’s position. At least until the meeting with his Russian colleague, Russian Energy Minister Alexander Novak.

Let us recall that in September 2016, 14 OPEC oil-producing states and several countries outside of it, including Russia, agreed to reduce oil production by 1.8 million barrels to 32.5 million bar. in a day. All signatories comply with the agreement to one degree or another. Including the largest oil exporters: Russia and Saudi Arabia. As for Moscow, it generally supports Riyadh. Russia believes that there may not be any particular need to extend the agreement for such a long period. And that the final decision on timing should be made in accordance with statistical data.

Don't overheat the market

The main criterion is the five-year average volume of oil in storage. A return to it, according to experts, may well occur as early as the second quarter of next year. Now, by the way, in oil storage facilities, according to OPEC Secretary General Barkindo, there are approximately 140 million barrels more than the five-year average.

In Moscow, a cautious approach dominates. Russian oil producers are afraid of “overheating” the market, which will certainly lead to price volatility. One can understand the caution of the Russians, and indeed most other oil producers, because no one knows how the American shale producers will react to a long extension of the agreement. It is not surprising that until recently Russia and Kuwait proposed not to rush and wanted to make a final decision at the beginning of 2018 in the hope that by then the picture would become clearer.

After negotiations with Saudi Arabia, Russia, according to media reports, seemed to agree to a 9-month extension of the agreement. Alexander Novak said in an interview that the final decision will be made at negotiations in Vienna.

OPEC and countries outside the cartel have agreed to extend the agreement to reduce oil production until the end of 2018. This respite is coming to an end; after the agreement is completed, prices may fall, the expert warns

Another year without production growth

OPEC countries in Vienna on November 30 extended the agreement to reduce oil production for another nine months - until the end of 2018, Oman's Oil Minister Mohammed al-Rumhi and Iran's Oil Minister Bijan Namdar Zanganeh told reporters (quoted by Bloomberg). Countries outside the cartel, including Russia, also joined the extension, Bloomberg reported, citing participants in the meeting (it took place immediately after the meeting of OPEC countries, also in Vienna). This was confirmed to reporters by Iraqi Oil Minister Jabbar al-Lueibi.

Before the meeting, Russian Energy Minister Alexander Novak said that OPEC and non-cartel countries need to continue coordinated actions in 2018 to further balance the oil market. The day before, he said that members of the monitoring committee of OPEC and its affiliated countries (OPEC+) came out in support of extending the agreement on production cuts.

Now the OPEC+ agreement will be in force until the end of 2018. This is the second extension of the deal, which was concluded at the end of 2016. Then 13 OPEC countries and 11 outside the cartel, including Russia, agreed for the first time to reduce oil production by 1.8 million barrels. per day relative to the level of October 2016 during the first six months of 2017. This is approximately 2% of global production. OPEC countries agreed to cut production by 1.2 million barrels. per day, Russia - by 300 thousand barrels. per day. On May 25 in Vienna, the participating countries extended the agreement for nine months - until the end of March 2018.

Saudi Arabia's Oil Minister Khalid al-Falih, on the eve of the second extension of the agreement, called compliance with the agreements fantastic. It is too early to talk about the smooth completion of the deal, al-Falih noted. He added that the exit from the agreement on production cuts will be “very gradual” and “very thoughtful” (quotes from Interfax).

In almost a year of the agreement - from the third quarter of 2016 to the third quarter of 2017 - commercial oil reserves in OECD countries decreased from 3.067 billion to 2.985 billion barrels, tanker reserves - from 1.068 billion to 997 million barrels. oil, follows from the OPEC report. Despite the positive changes, the market still needs to be balanced, Novak said in an interview with RBC TV on November 27: “We see that approximately 50% of excess oil reserves have left the market, we see that the price... has reached a fairly acceptable level in around $60 and above per barrel of Brent, investments began to grow already in 2017, and before that they fell in 2015-2016. However, we have not yet fully achieved the goal of balancing the market, and today almost everyone is in favor of extending the deal further in order to achieve the final goals.”

Photo: Andrey Rudakov/Bloomberg

At the same time, oil production in the United States, which did not join this deal, has increased by 11.5% since the end of November 2016, to 9.7 million barrels. per day, recalls Denis Borisov, director of the EY Moscow Oil and Gas Center. The Brent price during this time increased by 26%, from $50.47 to $63.84 per barrel (as of November 30).

In Russia, oil production in 2017 will remain at the level of last year - approximately 547.5 million tons (10.95 million barrels per day in the third quarter of 2017), Novak previously estimated. Before the deal was extended in May 2017, Russia planned to produce 549 million tons in a year, he noted. Due to the extension of the deal, Rosneft will either reduce the rate of production growth at new projects, the company explained. We are talking about the Russkoye field, the Yurubchenko-Tokhomsky cluster, and the fields named after. Trebs and them. Titov, which it is developing together with LUKOIL.

"Temporary respite"

OPEC cannot endlessly extend this agreement, says Sberbank CIB analyst Valery Nesterov. The agreement extends the respite for oil companies, creates a favorable price background, it will help Russia in the year of the presidential elections and Saudi Arabia in the year of the privatization of Saudi Aramco, he explains. But after this, most likely, the deal will not be renewed, and global companies will return to the chaos that preceded the fall in oil prices in 2014, the analyst warns.

The price of oil has been high in recent weeks in anticipation of the extension of the agreement; now it may adjust to $55-60 per barrel, Nesterov believes. This is a more acceptable level for the countries participating in the agreement; too high a price could give impetus to the growth of shale production in the United States, he explains. American oil has only recently appeared on the world market, but in October the United States already entered the top ten largest oil suppliers to China, the analyst recalls.

In November, the International Energy Agency (IEA) released a forecast that US production could rise sharply in the coming years. Thanks to the consequences of the shale revolution, it could reach 30 million barrels by the mid-2020s. per day, according to the agency’s long-term annual forecast World Energy Outlook. The IEA estimates that by 2027, the United States will likely become a net exporter of oil for the first time since 1953. Official Washington expects this to happen a year earlier, in 2026.

The current rise in oil prices is largely due to the general mood in the markets: participants in exchange trading are buying various assets, both financial and raw materials, such optimism leads to an increase in oil prices, notes Borisov. In the long term, the agreement with OPEC will stop short-sellers, he adds. If market conditions change and traders begin to actively sell assets, the deal with OPEC will become a restraining factor for oil prices and the collapse is unlikely to be deep, the expert concludes.

Further extension of the agreement with OPEC will depend on many factors, including shale production in the United States, Borisov believes. One of the important conditions will be the IPO of Saudi Aramco: if the placement takes place (its date has not yet been set) and the Saudis are able to sell the company’s shares at a high price, then Saudi Arabia will have one less incentive to prolong the agreement, the expert concludes.

Until recently, the heads of large oil companies said that OPEC had ceased to play the role of a regulator in the world market. However, the success of the September meeting of cartel ministers forced the market to reconsider its views, however, without completely dispelling skepticism regarding the possibility of a coordinated production cut.

The degree of disagreement within the cartel has decreased significantly over the past year, largely due to the change in the negotiating position (and the minister of oil) of its informal leader, Saudi Arabia. However, whether OPEC will be able to agree on November 30 on the first reduction in oil production in eight years will largely depend on the position of countries outside the cartel. First of all, from Russia, which continues to insist on freezing rather than reducing production, Interfax-Kazakhstan writes.

OPEC calls on countries outside the organization to reduce oil production by 500 thousand barrels per day. The cartel itself is ready to reduce production by 1 million barrels per day (such recommendations were developed by the Council of the OPEC Economic Commission before the meeting).

Russia is one of the main participants in the negotiation process; its interest in achieving consensus has always been genuine (it is not without reason that, according to Interfax market sources, it was Moscow that once acted as a mediator in the first contacts between officials of Iran and Saudi Arabia at the working level). At the same time, the Russian Federation maintains its original position: the basic option for the country is to freeze production at current levels, Energy Minister Alexander Novak has said repeatedly over the past two months. Taking into account the projected increase in production in 2017, the freeze will be equivalent to a decrease of 200-300 thousand barrels per day, he emphasized. Production will be limited at the expense of existing fields; plans for new fields will not be revised.

Negotiations on support for plans to freeze oil production are ongoing with several countries that are not members of OPEC, in particular Kazakhstan, Uzbekistan, and Mexico, Alexander Novak said. According to him, the goal is to involve as many oil-producing countries as possible in the process, while negotiations with one of the largest oil producers, the United States, are not ongoing. “We are positive, and, according to the information we have, the positions of oil-producing countries are close,” Novak noted this week.

The best option for Russia is to freeze production at the average level of the month preceding the month of the agreement, explained the head of the analytical center for the fuel and energy complex of the Ministry of Energy, Pavel Sorokin, during a telephone conference for analysts this week. He emphasized that he considers the opinion that Russia is ready to freeze oil production at its peak to be incorrect. “We saw some skepticism in April (before the freeze negotiations in Doha - IF), and I was surprised by the comments that Russia was ready to freeze peak production. If you look at the production figures that we have now, you will see that in April it was far from peak levels,” said Pavel Sorokin.

In October-November, Russia maintains production at post-Soviet highs - 11.2-11.3 million barrels per day. Even Russia’s freezing of production at the current level will mean an increase in 2017 as a whole by 200 thousand barrels per day, experts from the International Energy Agency (IEA) note. According to the forecast of the Ministry of Economic Development, included in the budget, in 2017 Russia will produce 548 million tons of oil (versus 544 million tons this year).

Despite this, a deal on the terms discussed by Russia will allow the market to balance faster. The main objective of the agreement is to remove excess oil reserves; the rest will be done by the market itself due to the projected excess of demand over supply. “For us and our OPEC partners, price is not a priority element of the agreement. The priority is to reduce the existing unnaturally high oil reserves, which put pressure on the market,” said Pavel Sorokin.

If there is no deal, then market balancing will begin no earlier than the end of 2017, IEA experts believe.

Balance of power

Russia plays a critical role in shaping the structure of the deal; it is interested in strengthening oil prices just like the OPEC countries, Nigerian Energy Minister Emmanuel Kachikwu said recently. However, it was disagreements within the cartel, primarily between Saudi Arabia and Iran, that caused the failure of negotiations on a production freeze in April.

At the June OPEC meeting, Saudi Arabia's newly appointed oil minister, Khalid al-Falih, said: “The market does the work for us. Demand is good and stable, production outside OPEC is falling, and we think it will fall at an even faster rate. Oil prices will go up as the market rebalances.”

By the fall, the state’s rhetoric had changed, which was facilitated by both the budget deficit (in 2015 it reached a record $98 billion) and the banal climatic factor - in the summer, Saudi Arabia, where there are air conditioners even at public transport stops, traditionally reaches maximum production levels due to for the growing demand for electricity.

Having made concessions to Iran, which was increasing oil production after the lifting of nuclear sanctions, as well as Nigeria and Libya, whose production was affected by military operations, the OPEC countries in September were unexpectedly able to agree to reduce production to 32.5-33 million barrels per day (b/d). ) from the record level of September - 33.64 million b/d. It is expected that the decision with the distribution of quotas for each cartel country will be approved on November 30, and in the future countries outside the cartel will also join the agreement.

Not all obstacles to oil diplomacy have been removed yet. Iraq demanded special conditions for cutting production, arguing that this was the ongoing fight against terrorist groups. In addition, the media became aware of disagreements around the level of production for Iran: OPEC proposes that the country limit it to 3.9 million bpd, while Iran intends to reach the pre-sanction level - 100 thousand bpd more.

This made the market doubt the positive outcome of the OPEC summit and put pressure on oil prices: Brent, after rising to an annual high of $53.73 per barrel in October, returned to decline (on Friday, North Sea oil traded at $48.3 per barrel).

However, Iraq's prime minister said this week that the country is ready to shoulder some of the burden of production cuts. Iraq proposes to the cartel to reduce production by 900 thousand bpd in order to support prices: an increase in the cost of oil by $1 per barrel brings the state $1 billion in annual income.

Thus, the focus now is on the positions of Iran and Russia - they will be decisive for the deal. The cartel alone will not be able to remove the pressure of excess oil from the market, the IEA notes.

Should we be afraid of rising production in the US?

If an agreement is reached, oil prices could rise to $60 per barrel, believes IEA head Fatih Birol. This will lead to an increase in supply, including US shale oil, which, in turn, will again begin to put pressure on oil prices within nine to twelve months, he believes.

“Anyone who thinks that in today’s situation they or any country can influence prices is crazy... High oil prices will attract even more raw materials to the market, and OPEC will continue to lose its share,” ex-OPEC told the Financial Times. Saudi Arabian Oil Minister Ali al-Naimi, under whose leadership OPEC pursued a policy of maintaining market share to the detriment of prices.

Taking into account the new US energy policy aimed at independence from imports, the niche vacated by the agreement may indeed be occupied by shale oil. The profitability level of shale oil producers is improving, and many risks that were considered detrimental to shale production have not materialized - companies still have access to financing, admits Pavel Sorokin.

However, he is confident that shale oil is an important, but not critical, factor for balancing the market. The main potential for production growth lies with OPEC, Russia and a number of other non-OPEC countries. If these countries do not increase production, then the growth in demand projected in 2017 by 1.1-1.2 million barrels per day should exceed the growth in supply.

“If prices remain approximately at the current level, then we should not expect a quick response from shale oil producers. We expect that at a price of $45 to $50 per barrel, shale production will stabilize and possibly begin to grow by the end of next year, adding 200-300 thousand barrels per day (that is, as much as Russia will remove from the market due to freezing production - IF). If the price is $55-60 per barrel, then this will happen a little faster, but this will not be critical,” the expert noted.

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Brent oil, which has risen in price by almost 25% since January amid negotiations on a production freeze, may fall back to $30. This will happen if OPEC countries do not agree at the key meeting on November 30, experts say

Back to $30

At a meeting in Vienna on Wednesday, November 30, members of the Organization of Petroleum Exporting Countries (OPEC) will try to agree on the final terms of the first collective production cut in eight years. Since September, when the cartel approved the initiative in principle, countries have tried to share the burden of this reduction among themselves, but have so far been unable to reach a consensus. Then the group decided to reduce production overall by at least 600 thousand barrels. per day, up to 32.5-33 million barrels. (in September and November, daily production was 33.6 million barrels, according to OPEC’s own estimates; in October - 33.7 million barrels).

Brent prices, which have risen almost 25% since January amid talks between key players about a production freeze, risk collapsing again if there is no deal. In this scenario, it could test the $30 mark (last recorded in January) as OPEC and Russia increase production in the fight for market share, analysts surveyed by Bloomberg predict. If consensus is reached, oil will be able to gain a foothold at current price levels or rise, the agency writes.

By 16:40 Moscow time, amid investor skepticism about the deal, January WTI futures in New York fell by 1.45%, to $45.63 per barrel, and January Brent contracts in London fell by 1.36%, to $46.88 .

The split persists

OPEC delegates were unable to overcome disagreements on the terms of production cuts at an expert meeting held on Monday, November 28. The discussion lasted ten hours. Iraq and Iran still had objections to the initiatives put forward, one OPEC delegate told Bloomberg. The plan provides for a production reduction of 1.2 million barrels. per day compared to the October level (33.7 million barrels). Oil producers who have increased output in recent years while Iran was under sanctions "will have to shoulder a larger share of production cuts," Iranian Oil Minister Bijan Zanganeh told state television on Tuesday before leaving for Vienna. Iran would still like to produce about 7.2% more oil (maximum production volume - 3.975 million barrels per day) than Saudi Arabia offers for it (3.707 million barrels per day). During the meeting, emissaries from OPEC countries fought for every barrel.

“Saudi Arabia and Iran have very effective negotiating strategies,” Abhishek Deshmande, lead energy analyst at French bank Natixis in London, explained to Bloomberg. “The problem for the Saudis is that they can no longer demonstrate force, as they did in the 1980s and 1990s, to get others to bend to their will.” Today, other members of the group, such as Iran and Iraq, are as powerful as they are, and they are all looking to increase their market share, Deshmandeh concluded. On Saturday, November 26, Russian Energy Minister Alexander Novak said that “OPEC countries must reach consensus within the organization before non-OPEC countries can join the agreement.”

Effect of the deal

A convincing statement from OPEC about a significant reduction in production, especially to the level of 32.5 million barrels. per day, could spur price increases of $5 or more in the following days, Bloomberg cites excerpts from a review by Morgan Stanley analysts led by Adam Longson dated November 28. The effect will be even stronger if it is supported by strong statements from non-OPEC countries, as long as attention does not focus on the risks of implementation and the longevity of the deal, as well as on the reciprocal increase in production outside OPEC (primarily in North America).

Oil companies around the world are hoping the Organization of Petroleum Exporting Countries will spark a market rally that will allow them to raise funds to ramp up drilling. The Oil Club wants to create an "ideal" zone between $50 and $60, which is "high enough to boost revenues for affected producers, but not too high to trigger a new wave of increased U.S. shale oil production," Walid Khadduri, an OPEC specialist at the Institute, tells Bloomberg. Arab Gulf countries in Washington.

If there is no OPEC deal in 2017, like the three previous years, supply will outpace demand, which could cause prices to decline. But even if it is concluded, “it is highly doubtful that the group members will adhere to the terms of the agreement and will not continue to increase production as before,” Se Sang-yoon, an analyst at Seoul brokerage Kiwoom Securities, told the agency.

With the participation of Lyudmila Podobedova

The parties are exploring options for measures to stabilize the oil market. In particular, Russia and the cartel agreed to join forces in terms of information and analytical research and analysis. “We want to get a synergistic effect in this regard,” Novak explained. The next meeting of the Energy Dialogue, according to him, could take place in 2017 in Moscow.

The OPEC Secretary General, in turn, said that the leading role of the Russian Federation “is extremely important to overcome modern challenges in the energy sector, which are often intertwined and difficult to resolve.”

But the most important topic - freezing or even reducing oil production - was not raised on Monday.

However, it was not planned to discuss it. It is expected that the decision to freeze or reduce oil production will be made at the official OPEC meeting on November 30. However, according to Novak, specific proposals may be made as early as the end of this week, as work at the expert level will continue.

Oil producers have clearly not yet reached full agreement.

For example, Iraq stated that the freeze (which, according to Iraq, is actually equivalent to a reduction) in production should not apply to it.

As Iraqi Oil Minister Jabber al-Lyaibi said on Sunday, this is due to the fact that the country is waging a “cruel war” against (a terrorist group banned in Russia). In this regard, al-Lyaibi appealed to other countries with a request to release Iraq from any obligations to reduce production levels. Earlier, the head of the Iraqi state-owned oil company SOMO, Falah al-Amri, stated that the issue of production levels is a matter of Iraq’s national sovereignty.

According to al-Amri, if not for the oil wars in which Iraq suffered, the country would now be producing not 4.7 million barrels per day, but 9 million barrels.

In mid-April, negotiations on the freeze broke down due to the position of Iran, which also believed that it should be given special conditions. True, not because of wars, but because of Western sanctions that limited exports, and therefore production in the country (the sanctions were lifted only in January). Following Iran, Saudi Arabia refused to freeze production, believing that all producers should support the initiative. As a result, the negotiations failed.

Now Iran, by the way, declares that it is ready for freezing. Deputy Minister of Oil of the Republic Amir Hossein Zamaninia said this on Monday. According to him, prices should stabilize at $55-60 per barrel.

This price level, according to Zamaninia, can be reached in 2017. Alexander Novak gave the same forecast at the end of September. Iran previously reported that it had already raised production to 4 million barrels per day.

But Kuwait believes that even if OPEC concludes an agreement on freezing, prices will only recover to the level of $50-55. At the same time, as the representative of Kuwait in the cartel, Nawal al-Fuzaya, said, $50 is the minimum vital to maintain investments.

At the end of September, OPEC countries decided to establish a common quota for the cartel countries - 32.5-33 million barrels per day. According to the organization itself, in September OPEC set another record - 33.394 million barrels. Moreover, only Saudi Arabia reduced production more or less noticeably (by 87.5 thousand barrels per day). The same Iraq increased production by 100 thousand barrels, Libya and Nigeria added 92.6 thousand and 95.3 thousand barrels, respectively.

Thus, the most pessimistic forecasts of oil market experts are coming true, who warned that even if some producers agree to start reducing production, others will immediately increase it in order to take market share. And the conclusion of an agreement on November 30 in such conditions is unlikely.

After all, the price of oil is no longer what it used to be. In April, when negotiations failed in Doha, Qatar, a barrel cost $42.85. And by the way, to this quotes There was practically no reaction. On Monday evening, a barrel of Brent on the intercontinental stock exchange ICE in London was $51.17.