Reached in Qatar agreement must be seen as clumsy and a failed PR campaign. If a few decades ago, OPEC was indeed a cartel able to manipulate prices through regulated production and export, nowadays the organization has become a meaningless discussion club.
Representatives of Russia, Saudi Arabia, Qatar and Venezuela met on 16 February in Doha and issued a joint Declaration, which should help stabilize prices on the global oil market. The parties pledged to maintain production volumes at the level fixed on January 11.
It should be noted that the oil contracts are simply not noticed this “verbal intervention”. Instead fly up at the sight of such a joint position of the major exporters, the prices are even ducked down, though the small size, which can be explained by normal fluctuation in the current highly volatile market.
To deceive the market failed, and the reasons for such indifference of the traders are on the surface.
First you need to understand that almost all leading oil producers have reached peak production and are not going to increase radically, except for countries such as Iran or Iraq, where still bear plans of conquering new market niches, after a long period of decline in exports. Traditional suppliers prefer to hold on the already conquered niche, and when opportunity and expand on them, but not by releasing new batches of oil, and with a huge price discount.
In battle pictures with the volume won volume. Bring exporters may benefit from high prices into the victim the amount of oil they can sell. If a few decades ago, OPEC was indeed a cartel able to manipulate prices through regulation of production and of exports, in our days, once a powerful organization turned into a meaningless discussion club. Each player on the oil market today plays for himself, the former solidarity is no question. You should reduce the export as empty niche immediately happily takes another supplier. In conditions of excess supply and stagnating demand, competition prevails over cooperation.
In other words, Saudi Arabia, Qatar and Venezuela have promised to support the production achieved in early January peak levels. There is no hint of a desire to reduce the volume of supply of oil on the market.
With Russia, however, the situation looks even more paradoxical and interesting. The obligation to maintain its production levels of Russian oil was given by the office, which does not regulates neither production nor export or domestic consumption. The Ministry collects information from operators in the sector and draws anyone to anything non-binding “indicative of the energy strategy”. In the best case, the Ministry will be several months to publish a summary of mining in the country and proudly report that the obligations to the three members of OPEC are strictly performed. Check out this data anyway.
Besides, it is necessary to consider that domestic consumption of oil in Russia has been steadily declining with the deepening economic recession – that is, while maintaining production for export will go more and more Russian oil. You may recall that in 2015 Russia increased oil production by 1.4%, but its exports to far-abroad countries grew by 10.6%. This trend, judging by all indications, should be maintained in the future.
Maintaining stable production volumes, the Russian oil industry is actually increasing the pressure on prices, because it increases the supply of this commodity on the market.
Here it is worth noting that oil production in Russia reached a peak in early January, should show a decrease. The exact moment of the beginning of the negative trend is difficult to predict, but it may be indicated at the end of this year or early next. Oil companies are rapidly exploiting existing fields, do not require major new investment, and quickly empty them, not investing in the development of new deposits, where returns costs will not come sooner than 7-15 years. Remain untouched and hard-to-recover reserves, where the cost of production is $80 per barrel. It seems that the operators of the projects is based on the principle: to quickly deflate all easily and cheaply given, and to hell with the future. New oil get too expensive, and the lack of money is felt more acutely now.
Very soon, Russian oil companies will be easy to show solidarity with OPEC and to report on the decline in production and exports in the name of maintaining prices in the global market.
Regarding progress in the Qatar agreement, it should be considered as a PR action.
