The OPEC + federation of oil producers will undergo a major test in a few weeks, when ministers meet to discuss the next step in their historic production contract aimed at re-supplying world oil supplies. balanced by growing demand. Things have almost moved too fast in their favor.
The recent rise in crude prices and the rapid pull-down of visible stocks will no doubt call for a faster-than-expected rise in yield targets in December. That may be managing tensions between the group ‘s co – executives, Saudi Arabia and Russia, with the potential for more brinkmanship that could weaken price recovery.
The report card was very good when the audit committee of the outcome group met last week to evaluate progress:
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Total compliance with the contract since it expired in May is at an unprecedented 99%
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Brent crude prices are testing $ 60 per barrel, a level not seen in more than a year
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Commercial oil stocks in developed OECD countries are declining and the group now expects to fall below their five-year average (2015-2019) by August – a key target for Saudi Arabia
How could anything go wrong, you asked? Well, despite these successes, Saudi Arabia still seems to be indifferent to forcing all but one member to honor their pledges to the barrel. After all, more than half of the countries that have signed up to the cut-off treaty have completely failed in their obligations. And as has happened so often in the past, the lion’s share for achieving the group’s goals has been entrusted to Saudi Arabia, which, by December, had cut more than 37 million barrels he had originally signed it.
POSSIBLE: Brent hits $ 60 as supply cuts and U.S. stimulus hopes to raise prices
As a result of this obsession with individual compliance, the Nigerian oil minister is obliged to bring other African representatives – in particular the Republic of the Congo, equatorial Guinea, Gabon and South Sudan – into “full compliance. to their supply changes ”with mechanisms to make up for yesterday’s disruption.
It all feels beyond the magnitudes of danger and the potential impact on the ground. For example, equatorial Guinea had to stop pumping completely for about 15 days to compensate for overproduction. For South Sudan, one of the poorest countries in the world, it would take two and a half months with no results at all.
At the same time, Russia, the group ‘s largest representative, is not under any pressure.
Despite OPEC + ‘s strong track record so far, the continued pressure on these small producers, while not only turning a blind eye to Russia but even allowing it to build productivity, reflect just how fragile the output group is.
The four African members were able to be seen walking away from the treaty. At 740,000 barrels per day, combined production in December was just 8 percent of Russia’s 9.11 million barrels per day. More importantly, they are all producing close to capacity, meaning they could add almost nothing more to the ongoing supply. Russia could boost its yield by 1.2 million barrels per day if it is not kept in the agreement. And that’s where his power lies.
Early next month, oil ministers will meet OPEC + to discuss production plans for April. Saudi Arabia returns the 1 million barrels per day of its voluntary cuts for February and March and, if oil prices remain at, or rise above, the normal levels, Russia will once again push to raise targets.
The change agreed in December allows for monthly changes in the overall target of up to 500,000 barrels per day until a total of 2 million barrels are returned. The first such increase came last month. Given that Russia and Kazakhstan received their shares of the next increase released over February and March, any yield hike for April, with rights, should be excluded. . I can’t see that going down well in Moscow.
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