OPEC will prolong its production decline, driven by the Moscow-Ryad duo


The OPEC logo at the headquarters of the organization in Vienna on 29 November 2016 (AFP / JOE KLAMAR)

On Monday, the OPEC and its allies, gathered in Vienna, blocked the Russian-Saudi proposal to extend the current production cuts to support the courses by nine months, even if the influence of the Moscow-Ryad couple irritates Iran.

The 14 countries of the Organization of Petroleum Exporting Countries (OPEC) and their 10 Russian-led allies "all support the proposal" to stay above production limits until March 2020, said the Russian finance minister . Energy Alexander Novak, after a first meeting Monday in Vienna.

These 24 countries grouped under the name of Opep +, which pump half of the world's oil, decided in December to lower their combined offer by 1.2 million barrels / day to sustain prices.

An agreement that they are preparing to renew on Tuesday after two days of meetings in the Austrian capital, at a time when the price of a barrel remains under pressure between the slow demand and the abundant supply, and despite the geopolitical tensions in the Middle Orient.

The suspense was initially limited: Russian President Vladimir Putin announced on Friday, on the sidelines of the Osaka G20, a compromise with Saudi Arabia to prolong the decline in production.

The extension should be decided for nine months, according to a consensus confirmed on Monday by several cartel members, including the United Arab Emirates, Nigeria and Saudi Arabia.

"This will ensure greater certainty for the market," and visibility "will reduce price volatility," said Folasade Yemi-Esan of Nigeria.

"Nine months gives us enough time to rebalance the market," Saudi Energy Minister Khaled al-Falih said, praising the knock-on effect of the Osaka compromise that has "turned on" in Vienna.

The Saudi Minister of Energy Khaled al-Faleh (D) and Prince Abdelaziz ben Salman ben Abdelaziz, Deputy Minister at the OPEC headquarters in Vienna, 1 July 2019 (AFP / JOE KLAMAR )

But not everyone approves the rise of Russia, the second largest world producer, and Saudi Arabia, leader of the cartel, allied for three years to stop the collapse in prices.

– Against the Ryad solo –

In Vienna, Iranian Oil Minister Bijan Namdar Zanganeh denounced the "unilateral" character of the Moscow-Ryad agreement.

Iranian Oil Minister Bijan Namdar Zangeneh at the Tehran Oil Forum on May 1, 2019 (AFP / ATTA KENARE)

"The OPEC will die with such a decision-making process" piloted by Saudi Arabia, Tehran's great regional rival, fired the minister.

An analysis strongly disputed by Ms Yemi-Esan, according to which the OPEC remains "a cooperation of sovereign states".

"OPEC is livelier than ever!" The announcements of his death have always been very exaggerated, "said the Saudi minister al-Falih, stating that" no one imposes the line ", subject to" everyone's consultation ".

He also defended the enlarged alliance: "Let's take a look at reality: OPEC alone represents less than 30% of world production. The influence of Russia, a major exporter of crude oil, he is well accepted, "he said. he pleaded. The Iraqi minister Thamer al-Ghadban confirmed that a "charter" that formalizes the relations of the OPEC + was "in discussion".

Russian President Vladimir Putin in Osaka on June 29, 2019 in Japan (POOL / Yuri KADOBNOV)

Iran, for its part, has been fiercely opposed at this stage to any cooperation agreement aimed at perpetuating the partnership between OPEC and its allies.

However, Tehran itself supports the renewal of production ceilings, above all because the country is so far exempt, given the return of the US sanctions that strangle its exports.

– Morosa question –

For the oil-producing countries, the equation is complex: on the supply side, the intensification of tensions in the Gulf (tanker attacks, US drones shot down by Iran …) awakens fears about the safety of crude oil supplies. but without causing price peaks.

Indeed, geopolitical risks seem to be clouded by the sharp drop in oil consumption between a Sino-American trade war and a slowdown in the global economy.

Faced with this weakened demand, the supply of crude oil remains abundant: the production of American shale oil continues to rise, competing with the OPEC and already inflating world stocks.

Concerned, Saudi Arabia has reduced its offer far beyond the production cuts imposed in the agreement, pumping 9.70 billion barrels in May, well below the agreed 10.31 million barrels. This is the case for most countries bound by the agreement.

The "OPEC +" strategy has so far paid off, as the price of a Brent barrel has increased by 20% since January. And the announcement of the Russian-Saudi agreement allowed the price of the WTI oil barrel to exceed 60 dollars on Monday for the first time since May.

A level well below, however, of the $ 85 that the Saudi budget would require.

jug-smk / bh

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