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OPEC is father, oil is mother ...

04 March 2021

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department
Тип: Analytics

Marcel Salikhov, President of the Institute for Energy and Finance Foundation commented on the current position of the OPEC + member countries in the “OTRazhenie” program on the OTR TV channel.

About a year ago, at about the same date, it so happened that somehow we could not agree, and after that we have a collapse! - the dollar rose, the ruble fell. How likely is this scenario this time?

- I think that the scenario that was last year will not be repeated. This is also because the countries that participate in the OPEC + agreement saw what the lack of an agreement leads to. Therefore, now there is uncertainty as to how much to increase production and whether to increase it at all. Accordingly, until recently, there was an expectation in the markets that OPEC + would agree to increase production by 500 thousand barrels per day (this is not so much, in fact) for the entire group. But today there have already been publications by Reuter that countries are discussing the possibility, among other things, to leave production unchanged and, this has already supported prices today. Because the consensus was that OPEC + would still increase production.

What are the factors in favor of the fact that oil will continue to rise in price? (Which is undoubtedly beneficial to the Russian Federation). And, what the factors, on the contrary, do indicate that in general the price has stabilized and, possibly, will creep down?

- Now the price of Brent is around $64. These are very good prices. In fact, this price level is higher than it was a year ago ahead of the March 2020 meeting. Therefore, the current prices are generally quite comfortable, including for Russia, Saudi Arabia and other countries. The main factor that led to rising prices is the continuing deficit in the market. That is, now the market is in a situation where demand has already begun to grow as the global economy recovers, but the supply is limited in part by the OPEC + deal, and in part by the fact that investment activity in the United States remains rather low. Accordingly, sooner or later OPEC + will have to increase production. This, in principle, is the main risk for prices.

Marcel Robertovich, we haven’t heard about our "shale friends" for a long time, that is, well, in quotes, I guess, who were active in this market. And when the oil price fell, they began to gradually close, go bankrupt, and leave. Now, you say, $ 64 is already quite a comfortable level. And we still do not hear about them and do not hear. Are they not returning to the market with their offer?

- There are several reasons. First, it just takes time. Even oil shale companies, which are quick to react to changes in the price environment, take time. If you remember, back in November last year, prices were in the range of $ 40 per barrel. Now $ 64. But, only 3 months have passed. This is even for companies that act quickly, it is still a fairly short time. Accordingly, if prices remain at current levels, it can be expected that some impact on production will occur at the end of 2021 - at the beginning of 2022.

- And, accordingly, prices are the main factor for shale producers. That is, if prices rise, accordingly, more and more deposits become profitable. And they will return. This is practically such an inevitable scenario. Although, of course, what is called “sweet spots”, that is, these are the most profitable, for the most part they were still used in the previous round of price cuts. Therefore, such a strong reaction, as it happened, for example, in 2015-2016, will not happen now, just due to resource constraints.

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