Russia could pull out of the OPEC oil production cut deal before the end of 2018-or right after-as it has no obligation to stick with it, Iran's Energy Minister, Bijan Zanganeh said. Russia "has no commitment to stay with it by the end of the year and OPEC may choose to alter the plan which I think would be unlikely," Zanganeh said.
So far Russia has kept its obligations under the deal, although Energy Minister Alexander Novak has mentioned that the deal may end sooner than December 2018 if the oil market rebalances. Russia aimed to cut 300,000 bpd from its record-high daily production rate for October 2016, which averaged 11.2 million bpd.
These comments, however, were made when there were indications the global oil supply overhang was shrinking and demand was growing. Now, production outside OPEC is growing as well, most notably, of course, in the United States. The Energy Information Administration reported yesterday that last week's production hit 10.38 million bpd, up from 10.37 a week earlier.
In the latest edition of its Monthly Oil Market Report, OPEC said that non-cartel production would cover oil demand growth this year. Non-OPEC supply "is now expected to grow at a faster pace, leading also to an upward revision in y-o-y growth by 0.26 mb/d to average 1.66 mb/d, compared to the previous MOMR," OPEC said, noting that the key growth drivers will be the U.S., Canada, Brazil, and the UK.
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But it's not just production that OPEC and Russia have a problem with. Exports from the United States are also growing-eating into OPEC's market share in Asia-a key market. No wonder talk about an earlier end to the deal has begun again.
Then there is the internal disagreement on prices within the cartel, which once again has Saudi Arabia pitted against Iran. This time, however, the spat is over determining what the best price level is for the commodity. The split, apparently, stems from Saudi Arabia's insistence that crude oil should be kept closer to US$70 a barrel-a level Brent touched briefly early this year-and Iran's equal insistence that US$60 is a better place for oil to trade at.
By Irina Slav for Oilprice.com
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Comments
To explain why, one has to be aware that oil is like a coin: one side is economics and the other is geopolitics and the two are inseparable. Russia looks at its relations with OPEC and particularly Saudi Arabia beyond the economics of oil to the geopolitics of oil.
For Russia, its growing strategic partnership with Saudi Arabia is an important pawn in the geopolitical chess game it is playing with the United States in the Gulf region and around the world. By maintaining its relations at the highest level with Saudi Arabia, Russia is trying to wean Saudi Arabia off from its geopolitical dependence on one uni-polar power (the United States) into a tri-polar powers, meaning Russia, the US and China.
Moreover, with the great success achieved by the OPEC/non-OPEC production cut agreement in virtually re-balancing the global oil market and bolstering the oil prices, only a fool would relinquish such a trump card.
Russia is going to continue cooperation with OPEC beyond 2018 and they will cement such cooperation in a permanent mechanism which responds automatically to a build in global oil inventories or to a tightening in the oil market.
OPEC’s latest projections of a 1.66 million barrels a day (mbd) increase in no-OPEC oil supplies in 2018 against a 1.6 mbd growth in global demand could add a miniscule 60,000 barrels a day (b/d) or 21.9 million barrels in 2018 to the global oil supplies.
This is neither here or there when compared to the glut since 2014 which amounted to more than 2.5 mbd or 912.5 million barrels or even with the total OECD commercial stocks of 50 million barrels above the latest five-year average. Moreover, it will have no effect whatsoever on oil prices.
Total US oil exports average around 1.4-1.5 million barrels a day (mbd) globally of which 200,000 barrels a day (b/d) go to China’s refineries and another 200,000 b/d go to India and the rest is used for blending with heavier oils. So US oil exports don’t pose a threat to OPEC or anybody since they are not competing against crudes from OPEC and Russia in volume or use.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London