Participants in the OPEC + deal cannot yet agree on the terms for adjustment of the agreement. The change in the deal will be discussed at the ministerial meeting in Vienna on June 22-23. Despite the fact that Russia and Saudi Arabia on May 20 expressed confidence that OPEC countries and outside OPEC will be able to agree on a new deal, it is still unclear whether the volume of production adjustments between the leaders of the agreement is agreed. Last week, the head of the Ministry of Energy of Russia Alexander Novak argued that Saudi Arabia agrees to increase the total output of OPEC + participants by 1.5 million barrels per day from the current level since the third quarter. Yesterday, the Wall Street Journal reported that Riyadh stands for an increase in production of 500 thousand barrels per day.
The OPEC+ agreement was reached at the end of 2016, its officially declared goal was to reduce world oil reserves to the level of a five-year average. To this end, the participants agreed to cut production from the level of October 2016 by a total of 1.8 million barrels per day.
According to OPEC and the IEA, the formal objective of the agreement was reached and even exceeded in April, when commercial inventories in the OECD amounted to 2.81 billion barrels, 26 million barrels below the five-year average. The agreement allowed to raise oil prices from below $ 30 per barrel in early 2016 to the current $ 75 per barrel. Now, due to the sharp drop in production in Venezuela and the imposition of US sanctions against Iran (will come into force in September), fears of a shortage of oil and a new rise in prices are ripening in the market.
However, the conflict has already ripened within OPEC because of intentions of Russia and Saudi Arabia to increase production. So, Iran accused Saudi Arabia of following the US instructions to lower the price of oil. At the beginning of the week, the Iranian oil minister, Bijan Namdar Zangeneh, tried to boycott the deal, declaring that he refused to negotiate on June 23. By now, Iran's position has softened a bit: Mr. Zangeneh agreed to meet with Alexander Novak on June 22. Venezuela and Iraq are also against the sharp increase in oil production. These countries, like Iran, will have to reduce their market share in favor of other OPEC+ members if the decision to increase production enter into force. If the production does not increase, Iran, Iraq and Venezuela will receive additional revenues from rising oil prices.
However, even if the negotiators agree on the amount of adjustment, another important issue is the allocation of quotas. Now OPEC, including Saudi Arabia, keeps its production below the quota determined by the agreement of 2016, whereas Russia has been significantly exceeding the quota of 10.9 million barrels per day, increasing production volumes since February.
source: reuters.com
The OPEC+ agreement was reached at the end of 2016, its officially declared goal was to reduce world oil reserves to the level of a five-year average. To this end, the participants agreed to cut production from the level of October 2016 by a total of 1.8 million barrels per day.
According to OPEC and the IEA, the formal objective of the agreement was reached and even exceeded in April, when commercial inventories in the OECD amounted to 2.81 billion barrels, 26 million barrels below the five-year average. The agreement allowed to raise oil prices from below $ 30 per barrel in early 2016 to the current $ 75 per barrel. Now, due to the sharp drop in production in Venezuela and the imposition of US sanctions against Iran (will come into force in September), fears of a shortage of oil and a new rise in prices are ripening in the market.
However, the conflict has already ripened within OPEC because of intentions of Russia and Saudi Arabia to increase production. So, Iran accused Saudi Arabia of following the US instructions to lower the price of oil. At the beginning of the week, the Iranian oil minister, Bijan Namdar Zangeneh, tried to boycott the deal, declaring that he refused to negotiate on June 23. By now, Iran's position has softened a bit: Mr. Zangeneh agreed to meet with Alexander Novak on June 22. Venezuela and Iraq are also against the sharp increase in oil production. These countries, like Iran, will have to reduce their market share in favor of other OPEC+ members if the decision to increase production enter into force. If the production does not increase, Iran, Iraq and Venezuela will receive additional revenues from rising oil prices.
However, even if the negotiators agree on the amount of adjustment, another important issue is the allocation of quotas. Now OPEC, including Saudi Arabia, keeps its production below the quota determined by the agreement of 2016, whereas Russia has been significantly exceeding the quota of 10.9 million barrels per day, increasing production volumes since February.
source: reuters.com