Frost oil production has acquired a whole set of intrigue, myths, and even conspiracy theory. The idea is speculative, uncontrolled and poorly implemented, but it arose precisely because everybody is tired of low oil prices. This means that the market will please even the most modest results of negotiations Russia, Saudi Arabia, Iran and other countries-oil producers.
On Sunday in Doha, Qatar, the leaders of the world’s oil, will discuss the issue of freezing the level of production. This should reduce or even fully eliminate excess supply on the world oil market, which is estimated at about 1.5 million barrels per day. Despite the fact that the first talks involving Russia, Saudi Arabia, Venezuela and Qatar took place only two months ago, the initiative has grown its own myths that are being actively discussed by market.
Myth # 1. “American shit”
Venezuelan President Nicolas Maduro explained that the agreement is trying to disrupt the United States, which put pressure on OPEC and producers outside the cartel. The Central objective of States, according to Maduro, is to prevent the stabilization of prices on the global oil market.
“You can’t even imagine the magnitude of the pressure from Washington,” said Venezuelan President in a live TV program “In contact with Maduro”, adding that States are “obsessed” with respect to Venezuela, Russia and Russian President Vladimir Putin.
The U.S. would be beneficial to agreement about the freezing, especially considering that the United States itself is not involved in it. “This would support the price of oil, which, in turn, would have a positive impact on the American projects for the extraction of shale oil”, — says the expert of the national energy security Fund the political scientist Igor Yushko.
Moreover, the States favorable to a slight increase in oil prices. Critical price for most shale producers America is $40 per barrel. Such a figure at the end of January published by the Agency Reuters with reference to market participants. Evaluation, however, is very different. Last year the head of the Russian Ministry of energy Alexander Novak spoke about the range of $50-60. In any case, the production of shale oil in the U.S. is gradually reduced — if last year the States produced 9.6 million barrels per day, for the week ended 8 April, the production amounted to 8.97 million barrels (data from the U.S. Department of energy). This happens due to the decrease in the number of drilling rigs, which, according to latest data from oilfield services giant Baker Hughes, already fell to the lowest since 2009 and amounted to 325 pieces. The number of rigs is declining precisely because of low prices, so that States with favorable growth or at least stabilization of quotations, which must be followed for the freezing of production. With regard to the statement, Maduro, according to Yushkova, is purely political, and oriented to “domestic consumers”.
Myth # 2. “All for one”
Talks about the freezing was from the beginning very controversial, however it is possible to arrange two or three countries without universal participation. So, Iran, first supported the idea, subsequently stated that will not fix the mining until you reach the level of 4 million barrels per day (you need to increase production by approximately 600 thousand barrels per day). And 2.25 million barrels is expected to be exported. Previously, Saudi Arabia has declared that will not support the freeze, if it does not agree all participants of the negotiations, and Iran — in the first place. Later, however, according to unofficial data, Russia has managed to convince the Saudis to capture prey without regard to Iran.
Therefore an agreement without Iran’s participation it is possible (by the way, indirectly, that Iran rejected the idea of freezing, is the fact that the Iranian oil Minister may not participate in the Doha negotiations).
Earlier Alexander Novak has repeatedly said that without the participation of Iran freezing balances supply and demand in the oil market, as the initiative was supported by the country, together providing 73% of world production.
Actually it is about Russia and the Saudis. But one thing remains true: if an agreement to freeze will be achieved without Iran, there is a risk of increased competition for market niches, as Iran has already warned that he intends to reclaim lost during the sanctions of the market share and is ready to dump.
Myth # 3. “Everything under control”
Actually no control over the production of oil cannot be established. To consent easy, but will manufacturers, in reality, to hold back production? Russia and Venezuela previously said that the production volumes will be continually monitored. The Deputy Minister of energy of the Russian Federation Alexey Teksler even claimed that the control is not difficult, because “the market is transparent and easy hoax revealed”, and the Russian Ministry of energy monitors the level of production in the Russian Federation with consideration of the agreements about the freezing.
However, it is still not resolved, who will control the situation as a whole. Thus, as said at the Krasnoyarsk forum in late February, another Deputy Novak, Anatoly Yanovsky, a legally binding instrument on freeze, most likely, never will be — the arrangements are voluntary.
In other words, any time the country extraction not satisfied, may start to increase. Especially serious doubts arise if we look at OPEC itself, which is not comply with its own quota.
In January 2016 record was set when the limit of 30 million barrels per day, countries in the cartel together have produced 32,439 million barrels (data from materials OPEC). In March production was $ 32,251 million barrels.
Myth # 4. “Everything is pointless”
There is an opinion that even if the countries — oil producers would agree (without Iran), freezing production on the market and the prices are not affected. The international energy Agency (IEA) in late March has called the idea of fixing the extraction senseless as really to increase production can only Saudi Arabia.
“Mostly it was the sort of gesture that supposedly aims to create the confidence that the oil prices are stabilized”, — said the head of the IEA’s Neil Atkinson.
Indeed, the fundamental balance of supply and demand may not change either shift to the demand side, but only slightly (especially considering the above position of Iran and the risks of non-compliance).
However, in addition to fundamental factors affect the quotes and speculative. It is waiting for a meeting in Doha became a background driver for oil prices, which since the first talks about the freezing (16 February) increased by 37%, from $32,28 $44,3 per barrel (data on Thursday).
Moreover, almost all on the market are tired of low fuel prices, both producers and consumers. The prices are not encouraging even Europe, which is trying to spur economic growth and just a little to spur inflation.
Sberbank CIB in their review predicts that in the case of an agreement without Iran the price of oil will be about $45 per barrel, however, if Iran will join the freeze, rates will already rise to $50.
But if the talks fail, oil is estimated Sberbank CIB may go to $35 and even lower.
Bank of America Merill Lynch believes that the balance of supply and demand may significantly change if the producers will fix the loot. Bloomberg, citing a forecast by the Bank of America Merill Lynch, cites a figure of 0.5 million barrels per day — exactly the period which will reduce the imbalance of supply and demand. And it’s in the short term will push the prices to $50.
