OPEC + Baku Meeting Makes Decisions of World Importance

Baku / 18.03.19 / Turan: The meeting of the OPEC Ministerial Monitoring Committee (JMMC) is the 13th in a row, but the debut meeting in Baku ended with the adoption of important decisions of global importance.

The participants of the meeting, including the largest players on the world oil market - Saudi Arabia, Venezuela and the Russian Federation, as well as their partners in OPEC and non-Cartel countries, decided in April to actually reduce oil production and exports to stabilize and even increase world oil prices, as well as to cancel the meeting scheduled earlier for April 17-18 in Vienna, considering it premature to determine the next steps for the second half of 2019.

Recall that OPEC and its allies in December 2018 agreed to reduce oil production in the first half of 2019 by 1.2 million barrels per day (1.2% of world demand) in order to raise oil prices.

At the same time, the USA in recent months has been increasing production and export of its own oil, simultaneously introducing sanctions against OPEC member countries - Venezuela and Iran, in order to reduce deliveries from these two countries to world markets by 2 million bar / day.

Venezuela"s Oil Minister, President of the country's state-owned oil company, PDVSA, Manuel Quevedo, in Baku, said the country could redirect oil originally intended for the United States to Russia or other countries interested in it.

Iran is boycotting the JMMC meetings, because, according to experts, it believes that such meetings are used by Saudi Arabia to promote its interests, and also not to give an objective view of the current oil production in Iran and its export while the country is under US sanctions, given that the US is a strategic partner of Saudi Arabia.

There is a sense in Iran"s "offenses" because Saudi Arabia is really pushing all oil-producing countries (except the US, which has an independent position) to reduce oil production, recognizing that it would be pleased with the price of $ 85 per barrel in order to balance its budget.

Note that the price of Brent crude (reference grade of oil) last week reached a peak from the beginning of 2019 - above $ 68 a barrel.

US President Donald Trump openly criticized OPEC, accusing it of seeking to achieve "unreasonably high oil prices."

At the press conference in Baku, the Minister of Energy and Natural Resources of Saudi Arabia (OPEC leader) Khalid Al-Falih said that by the end of the year the world oil market looked oversaturated.

"While the level of oil reserves is growing, we are far from normal indicators and will adhere to the course (to reduce production), leading the market to equilibrium," he said.

In his opinion, the participating countries of the OPEC + agreement will need several months to remove the excess oil reserves from the market.

"Oil reserves in developed countries continue to fluctuate. Our goal is to reduce global oil reserves to more normal levels, and, more importantly, to protect the market from over-saturation," the Saudi Arabian Minister added.

In his opinion, another important indicator is the state of investment in oil.

"We do not see an investment trend that will bring us closer to the necessary figures," said al-Falih.

Falih added that estimates of the world's oil industry show that in the next two decades, $ 11 trillion of investments in this sector will be required to continue to guarantee global oil demand.

According to him, the decision to extend the OPEC + deal may be made on June 25.

"OPEC does not want to change course, while oil reserves continue to grow, and so far the impact of sanctions against Iran and Venezuela on the market is unclear," he said.

According to the Minister, the previously planned extraordinary meeting of OPEC + participants in Vienna in April has been ceased to be relevant.

"In April, it is too early to decide on the fate of the OPEC + transaction, so the possibility of canceling the extraordinary meeting of OPEC + scheduled for April 17-18 is being considered. This was a consensus opinion after several bilateral meetings in Baku," he said.

The Russian Federation (the largest oil producer outside the Cartel) adheres to the same point of view. It considers it necessary to study the impact of sanctions on Iran and Venezuela, as well as the production situation in Libya and Nigeria (participated in the Baku meeting), since these "black swans" have significant impact on the global oil market.

Recall that in early May, the term of the exemptions issued by the US Treasury to a number of countries, which can import Iranian oil without sanctions, ends. Potentially, the volume of imports, not subject to sanctions, is about 1 million b / d, but not all the countries use this opportunity, still refusing to buy Iranian oil.

Along with the decision to reduce oil production by 1.2 million b / d in the first half of 2019 (0.8 million b / d in OPEC countries and 400 thousand b / d in non-OPEC countries) adopted in December last year, there was also a decision to hold an extraordinary Cartel meeting in April, but in Baku, the key players decided that there was no need for such a meeting, and perhaps it will appear in May (then the meeting will be held in Jeddah).

For the time being, the US Treasury Department has not issued any signals about further actions regarding Iran. The situation regarding oil production in Venezuela also remains tense due to US sanctions and the political crisis in this country.

As it became known on March 18, the Monitoring Committee in Baku approved changes in the reference base to reduce oil production for three countries - Brunei, Ecuador and Malaysia. The total amount of decline in oil production attributable to these three countries is 34 thousand b / d.

Earlier, Al-Falih noted that in February, the execution of the OPEC + transaction reached 90% compared to 83% in January, and in March it could exceed 100%.

In Saudi Arabia itself, production in March will amount to 9.7 million b / d (by 500 thousand b / d exceeds the country's obligations in the framework of the December OPEC deal +) and other countries need to share the burden of reducing oil production.

"JMMC in Baku stressed the need for the responsibility of all participating countries to restore market stability and avoid repeating any imbalances in the market. All participating countries, together and separately, assured the Committee that they would exceed their quotas to reduce oil production in the upcoming months," reports the leadership of OPEC.

In particular, Kazakhstan under the OPEC + agreement has undertaken to reduce oil production from the level of November 2018 by 40 thousand barrels per day. Thus, oil production in the country should not exceed 1.86 million barrels per day.

As ASTNA learned, it will be easy for Kazakhstan to do this from April, also because a planned shutdown of production for maintenance will begin at the Kashagan field.

As for Azerbaijan, then, according to Minister of Energy Perviz Shahbazov, "Azerbaijan expects to improve the performance of the OPEC + transaction in April."

"As you know, in December 2018, we assumed new obligations in the framework of the OPEC + transaction. However, they have not yet been fully implemented. We are actively working to fulfill our obligations under this transaction and we expect to improve our performance next month," P. Shahbazov said at a press conference.

Recall that within the framework of the December OPEC + Azerbaijan agreement, from 2019, oil production should be reduced by 20,000 b / d compared to September 2018, that is, to 776,000 barrels.

However, in January 2019, the daily oil production in Azerbaijan amounted to 793,000 barrels, and in February 2019 it was 806,000 barrels.

The Russian Federation will also significantly reduce its production and has already reached a decline of 140 thousand b / d with a quota of 228 thousand b / d. Russia will reach the target figure for the transaction with OPEC in April. -0-