Saudi Arabia will increase oil production due to disruption of the OPEC + deal

Saudi Arabia plans to increase oil production in April due to the disruption of the deal between Russia and OPEC. On Sunday, March 8, citing sources, Bloomberg reported. Oil production may begin in April.

According to the agency, in March, the Kingdom of Saudi Arabia produces approximately 9.7 million barrels. oil per day, however, intends to increase production in April to 10 million barrels.

A similar increase in oil production “would plunge the markets into chaos” against the background of a coronavirus epidemic that already hit demand, the article notes.

If necessary, sources said on condition of anonymity, representatives of Saudi Arabia announced their readiness to increase oil production to 12 million barrels per day.

As the agency explained, such Riyadh tactics are aimed at exerting maximum pressure on Russia and its oil companies, not interested in restricting production, to return to the negotiating table within the framework of OPEC +.

To clarify, Russia is not a member of the OPEC oil cartel.

At the discretion of oil companies

OPEC members and Russia, as well as other exporters of raw materials at the Vienna talks on Friday, could not agree on the regulation of oil production.

During the meeting on March 6, OPEC + countries agreed to continue cooperation, but obligations to limit oil production are lifted, then Russian Energy Minister Alexander Novak, who participated in the ministerial meeting in Vienna, said.

Since April 1, 2020, countries have no obligations to reduce oil production.

The increase or decrease in oil production by Russia will now depend on the plans of the Russian companies themselves, but the RF Ministry of Energy has not yet discussed such an option with them, Novak added at the exit from the OPEC headquarters in Vienna.

“This will depend on the plans of companies in the first place,” he said, answering a question about the possibility of Russia increasing oil production.

Recall that the main item on the agenda of the OPEC + ministerial negotiations was the topic of additional restrictions on oil production in response to a drop in demand due to the coronavirus. The number of people infected with the new coronavirus worldwide exceeded 100 thousand people.

Russia is not afraid of falling prices

The previous decision to regulate oil production was made at the OPEC + meeting in December last year. The current deal to limit oil production applies only to the first quarter of 2020, that is, is valid until the end of March. OPEC + countries have been regulating oil production since January 2017. The terms of the transaction have repeatedly changed. Until the end of 2019, it was planned to reduce production by 1.2 million barrels. per day from the level of October 2018.

And in the first quarter of 2020, the oil alliance reduces production by 1.7 million barrels.

After the failure of Russian negotiations with OPEC, a drop in oil prices could lead to a loss of $ 100-150 million per day for Russia, said Leonid Fedun, vice president of Lukoil.

“Having a deal is much better than not having one. And for Russia[срыв соглашения]means a fairly large loss. Why these losses, I don’t understand, ”he said in an interview with TASS.

World oil prices reacted negatively amid news of the failure of the deal in Vienna.

The cost of futures for Brent crude oil with delivery in May 2020 toexchangeICE in London was down 9.4% to $ 45.25 a barrel.

The price of the April WTI oil futures at the moment fell by more than 10% and is at around $ 41.22 per barrel. This is the level of August 2016.

“The lack of agreements between oil exporters is a significant factor in favor of the movement of oil prices in the range of $ 40-45,” said Anton Pokatovich, chief analyst at BCS Premier.

Moreover, the lack of compromise between the Russian Federation and the cartel poses risks of disbanding the coordination of the parties achieved during OPEC +’s efforts to maintain the oil market’s pricing environment, the expert adds. “In fact, we can talk about both a reduction in production quotas and a withdrawal from the deal of the main exporters – Russia and Saudi Arabia – and their return to increase production,” says Pokatovich.

If the market remains without artificial support from OPEC + in the face of pressure on the global economy from the viral factor, the supply canopy can return to the oil market and the main players will return to price wars, the expert predicts.

The worst case scenario is the transition of the world economy into recession under viral pressure. In this case, oil prices may show a decline to around $ 30 per barrel.

Such a pricing environment may force exporters to return to the negotiating table and begin to negotiate, concludes the BCS Premier chief analyst.

On the eve of the OPEC monitoring committee + meeting, Russian President Vladimir Putin said that the Russian side was ready for active cooperation with foreign partners in the global oil market. The President called for “being prepared for a variety of scenarios.” At the same time, he noted that the current level of oil prices is acceptable for Russia. Until the critical point fixed in the budget – $ 42.4 per barrel – oil has not yet dropped.

After that, Finance Minister Anton Siluanov announced Russia’s ability to finance budgetary obligations even at a price of oil of $ 30 per barrel. The National Welfare Fund funds under this scenario will allow them to be implemented in the declared volume for four years.

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