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BackThe OPEC agreement: what will happen after March 2018?
Meeting of the Committee responsible for monitoring compliance with the Global Oil Production Cut Agreement by OPEC and non-OPEC countries for the first time took place in the third week of July in Russia. Maybe by a simple coincidence, or maybe under the influence of the spirit of eternal Russian reflection, but Monitoring Committee members, OPEC President Khalid Al-Falih and his Secretary-General Mohammed Barkindo, unwittingly indulged in the search for answers to the age-long questions of Russian intellectuals: "Who is to blame?" and "What to do?".
All day long energy ministers, members of the Committee, although they noted the positive impact of the Agreement on the industry - growth in oil demand, reduction in the world hydrocarbon reserves - were forced to admit to themselves in the need for additional measures to stabilize the market. It is understandable: the meeting of the Committee was held after a serious slide in oil prices - down to $45 per barrel in June, from which the industry has not yet recovered.
SLUGGISH POSITIVE AGAINST "BEARISH" ACTIVITY
Saudi Arabia's Energy Minister Khalid Al-Falih during the final press conference, tried to indicate the positive aspects of the Agreement. According to him, over the first six months 98% of the Production Cut Agreement were fulfilled. “Meaning that we came to 100% fulfillment as closely as you possibly can expect. And it's not for a month, not for two months, but consolidated figures for 6 months," - he said.
As a result, there is a trend on rise in demand strengthening on the global market. According to the OPEC President's assessment, by the end of the year it can grow to 2 million barrels per day. In addition, change in level of oil reserves became visible: thus, reserves in the United States dropped from a peak of 500 million barrels to 490 million barrels, and reserves of the OECD countries for six months dropped to 90 million barrels.
But after that, there were no more positive developments. Already at the opening meeting of the Technical Committee, Al-Falih acknowledged that, despite all efforts, downward trends in the oil market remain. "We must recognize that he "bears" actively engage themselves on the market. And there are several reasons for this," - he said. In particular, growing shale oil production in the United States, level of the world's oil reserves is reduced not as rapidly as expected, Nigeria and Libya have begun to increase production, a number of parties to the Agreement have growing oil exports to the world market, and the main thing - not all countries of the Agreement fulfill their commitments.
AFRICAN SYNDROME
Even though Libya and Nigeria belong to OPEC, but do not participate in the Oil Production Cut Agreement. These specific conditions have been granted to them last fall during the preparation of the Agreement, when the political situation in these countries was highly unstable and their production constantly decreased. But both countries have intensified the production in recent months. According to OPEC, in June only, Libya's production over the course of a month rose by 17.5%, to 852 thous. bpd, in Nigeria by nearly 6%, up to 1.733 million bpd. As a result, the representatives of Nigeria and Libya were "called on the carpet" of the Technical Committee to give explanations with a further proposal to enter the deal as full-fledged partners.
But Libya and Nigeria still managed to convince OPEC that production growth is unstable and it is too early to take it into consideration seriously. Oman's oil and gas Minister Mohammed Hamad Al-Rumhi said that the accession of Nigeria is only possible if the country reaches a production level of 1.8 million bpd within three months. "Then they are willing to become parties to the agreement and reduce production by 4.6%. This is what we have agreed in the past year, but they have been granted exclusions", - said Al-Rumhi. The truth is, according to the Minister, few of the participants believe in this scenario.
Saudi Arabia's Energy Minister Khalid Al-Falih also expressed a certain skepticism about ability of these African countries to keep a stable level of production. "Libya’s goal is 1.25 million bpd, but they say it's a challenging scenario. In fact, they indicated that they have a lot of technical and financial challenges that complicate the retention of production at the current level. Thus, we think that the overall production of both Libya and Nigeria will be somewhat limited", - he said.
"If you would ask me: what figure you, Khalid Al-Falih, would specify for both of these countries as the production limit? I wish them all the best, but I think that 2.8 million bpd is unlikely to keep up with, given the discussion that I had with the two delegations, as well as third-party and Technical Committee assessment”, - stressed Al-Falih.
"I think that these countries should join other oil responsible producers and contribute to the market stabilization, as soon as they reach stable production levels", - echoed words of his colleagues, the Head of the Russian Ministry of Energy, Alexander Novak.