Photo: Getty Russia and Saudi Arabia to stop price war
The purpose of the agreement is to contain the fall in oil prices. In recent weeks, they declined sharply and reached the lowest level in 18 years.
The cartel of the countries-oil producers of OPEC, the largest of which is Saudi Arabia, Russia and other oil producers agreed to a major reduction in oil production.
To the historic deal first joined the US, which thanks to the shale revolution have become one of the largest oil producers in the world. Корреспондент.net tells details.
Who loses in price war
An international intergovernmental organization, OPEC appeared in the 1970-ies and shocked the world, because at its discretion ruled the oil tap and became the ruler of the market in developed countries.
But in recent years, the influence of OPEC has decreased, and when the United States became the largest oil producer in the world after the “shale revolution”, the organization was on the verge.
In 2017, joined by Russia, and a format of OPEC+. However, the cooperation ended a month ago. Since the price of oil began to plummet to c $ 51 March 4 to 32 dollars per barrel on 9 March.
In March 2020, OPEC led by the Saudis have offered to further cut production by 1.5 million barrels to remove from the market the surplus of oil.
Russia has refused to take a further decline in production. In response, OPEC decided not to renew the previous agreement, which meant the removal of all restrictions from 1 April.
After the collapse of the deal Saudi Arabia – the de facto leader of OPEC – has offered its customers a major discount. Media began to talk about the “price war” in the oil market.
A mediator in talks between Moscow, Riyadh and Mexico city, designed to stabilize oil prices, was made by the President of the United States Donald trump. Earlier, the us oil companies have never participated in such agreements.
Now the oil market in the traditional sense no longer exists, the newspaper Die Welt. A new “state-capitalist” cooperation abolishes it. Countries who do not have their oil, we should abandon the raw materials in favor of alternative energy sources, emphasizes Die Welt.
Kuwait, Saudi Arabia and the UAE agreed to reduce production by an additional two million barrels. The G20 countries agreed to reduce by 3.7 million barrels.
For Russia back in the deal means a reduction of oil production rate seen since the beginning of 1990-ies was 8.4 percent, Kommersant said.
In absolute terms, the reduction of oil production of Russia will amount to about 46.6 million tonnes – greater fall was observed in the Russian modern history only at the end of 1992.
US involvement in the deal is an important issue for the President of Russia Vladimir Putin, writes Bloomberg, citing informed sources. Among the reasons: the deal a victory, not a defeat, but also hope for concessions on sanctions.
However, many Western publications, for example Foreign Policy, is still talking about the defeat of Russia in a price war with the Saudis.
Co-owner of Russian oil company LUKOIL Leonid Fedun checks the transaction with the Brest peace, “when the Bolsheviks in 1918, were forced to go to humiliating and heavy deal with Germany”.
In an interview with RBC he said that Russian oil production decline by 2.5 million barrels a day – it’s a shock, but without the agreement of the production would have fallen by 50 percent. Thanks to a deal the price of oil will remain in the range of 30-40 dollars, and Russia will receive 70-80 million dollars a day, he said.
In the Kremlin say that the OPEC deal+ very important because it helped to avoid chaos in the oil market.
The price of oil is falling, despite a historic deal / EPA
The decline in production in the foreseeable future will not lead to an increase in oil prices, experts say. The price of oil, according to most forecasts, on average, until the end of the year hardly will be significantly higher than $ 30 per barrel.
Auction April 13, opened with a fall in the price of Brent by 1.8 percent to 30.9 percent. Soon quotes rose to 32.88 dollar, but returned to fall. Last time such low rates were observed in 2003-2004.
This market reaction is due to two factors. First, the past five years, the market is crowded with white oil. Second, the pandemic coronavirus led to strict quarantine measures in many countries, which resulted in unprecedented fall in oil demand by 15-30 percent, according to various estimates.
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