The main event of the past week was the conclusion of the OPEC + deal to reduce oil production in the short and medium term.
Reasons for concluding a deal:
- The need to stabilize prices and eliminate oil imbalances in the world market, which was caused by the breakdown of the previous agreement in March 2020. This gap in the agreement led to a fall in world oil prices in the region of 20-25 dollars per barrel, which is close to the cost of production, taking into account the tax on mining.
- The situation with the coronavirus, which continues to spread rapidly, which reduces the oil demand side.
- The need to achieve political consensus and reduce tensions between Russia, the United States, and the Arab conglomerate.
What did the deal lead to? The answer to this question is given in the tables below:
- The total reduction in production will be about 11-12 million barrels per day.
- Russia and Saudi Arabia are cutting production by 2.5 million barrels per day.
- The United States reduces production by 300 thousand barrels per day - instead of Mexico, due to which negotiations were delayed and which did not plan to reduce production by such a volume.
Are there any obvious losers in the OPEC deal?
Undoubtedly, in the person of the Russian Federation. Why?
- The daily oil production by Russia in January-February was at the level of 11-11.5 million barrels per day. The current reduction for it is 2.5-3 million barrels from the levels of two months ago.
- Saudi Arabia produced about 9.5 million barrels per day in January-February, and after breaking the agreement, it increased production to 11 million barrels per day. The OPEC transaction concluded reduces their production to 8.5 million barrels per day, that is, by only 0.5-1 million barrels per day.
- The United States reduces production by only 300 thousand barrels per day, which is the most favorable value for the long-term goal of increasing the share of the oil market.
Thus, the reluctance of states in March 2020 to conclude (continue) an OPEC deal to reduce production by 1.5-2 million barrels per day led to an agreement in April 2020 with more negative figures, based on which the overall reduction in production increases by 5-6 times (up to 11-12 million barrels per day).
Russia in this deal reduces oil production by almost 25%, which, taking into account the oil component of its state budget, increases the risks of its deficit and a sharp decline in GDP.