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The OPEC+ interventions on the market in recent years have helped the oil industry to see the beginning of the return of confidence and investments, Russian Deputy Prime Minister Alexander Novak told Russian TV channel Rossiya 24 in an interview on Friday.
“We positively assess the joint actions since 2016. They allowed us to return investments and restore confidence in the industry. This is a strategically longer period for planning our activities,” Novak told Rossiya 24 in an interview to mark the fifth anniversary of the first OPEC+ agreement reached in December 2016.
Back then, OPEC and a group of a dozen non-OPEC oil producers led by Russia started to manage the supply in order to limit production and balance the market.
The most difficult meeting for OPEC+ was the one in March 2020, when countries couldn’t reach consensus on how to proceed with the collective oil supply at the start of the pandemic, Novak told Rossiya 24.
A month after the deal collapsed and Russia and Saudi Arabia were in a price war in March and early April 2020, the OPEC+ members realized that they need to cut a massive amount of oil production in order to bring the market back to balance while demand and prices were crashing with the pandemic.
OPEC+ is still unwinding those 10 million barrels per day (bpd) total cuts, by easing them by 400,000 bpd every month.
Earlier in December, the group surprised many market observers by sticking to its plan to ease the production cuts in January by 400,000 bpd, despite mounting evidence of a larger-than-expected oil surplus early next year.
OPEC+ may have brought more stability to the market, but investments post-COVID are still lagging behind pre-pandemic levels, industry officials and analysts warn.
Upstream oil and gas investment must rise to the pre-pandemic levels of around $525 billion per year through the end of the decade so that the industry can ensure a demand-supply balance, Saudi Arabia-based International Energy Forum (IEF) and IHS Markit said in a report this week. This year, upstream investment is still depressed, for a second year in a row, and is estimated at around $341 billion, they added.
OPEC Secretary General Mohammad Barkindo warned the audience at the World Petroleum Congress this week that cutting investments in oil and gas production is misguided. Insufficient investment in new oil and gas supply would lead to energy shortages, as well as market imbalances and higher prices, Barkindo added.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
OPEC+ has emerged from the pandemic as the most influential player in the market. Its interventions have helped stabilize the market and support prices. It has grown in stature that it was able to reject President Biden’s repeated calls to it to raise its production arguing that this will tip the market into glut.
The arrangement between OPEC led by Saudi Arabia and its allies from outside the organization led by Russia under the banner of OPEC+ is like a marriage of convenience. Each party goes into it expecting to get something out of it. However, both parties have gained the greatest influence over the global oil market and prices.
And like any marriage, one would expect the occasional tiffs like the short-lived price war between Russia and Saudi Arabia and the one between UAE and Saudi Arabia.
In the final analysis, OPEC+ is underpinned by the close cooperation between Saudi Arabia and Russia. This has enabled both of them to enhance their influence immeasurably over prices and the market. May this cooperation continue for the benefit of the global economy and also members of OPEC+.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London