Oil: OPEC’s Decision+ will support the market

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As the market expected, the members of the cartel agreed to increase production, as the main participants in Saudi Arabia, and Russia were able to agree among themselves and now, in fact, were the main “horses” of the whole process. Iraq, Iran, Venezuela and other exporting countries have different kind of difficulties in meeting obligations, so increasing production by 1 million barrels – the best option for everyone.
This decision will not lead to oversupply in the market, since the agreement was surpassed in total more than 1.5 times due to the drop of deliveries in recent months in many countries-exporters (Iran, Venezuela, the former Libya). Thus, the market is just trying to approach the implementation period of the plan. Volatility on trades is still a few percent per day, but the summer transactions occur with smaller volumes, so the process will slow down by the end of this week to 0.5% per day.
As for Russia, it is ready within a month to increase the daily rate of oil production by 200 thousand barrels, of course, total. The industry in proportion to the share of the export market share volumes and, in contrast to countries in the Middle East, and suspending production on the already long-used fields and building up the new. This approach enables Russia to develop the necessary amount of oil due to more easy stocks, so in the near future, the profitability of oil companies will grow at the expense of profitability of the production.
Next the results of the OPEC meeting not only bring additional income from the sale of oil and hold markets but also allow the government to ease the pressure on the economic sector, and also to change the approach to the cost of gasoline prices. As you know, gasoline is less than a third of the price of oil, the rest is taxes and fees. The pressure reduction from the state will reduce gasoline prices by 2.5-3 rubles for the past month. Unfortunately, the reduction will take place only under the supervision of the state, or of the company (the company) themselves hold it no more than on the ruble.
Large-scale investment programs of the oil companies require resources and take money not only from the external market and internal logic dictates profit. Therefore, the role of the state as socially responsible and a certain defender of civil rights, is to regulate economic policy in the country taking into account the compromise between business, budget and population.
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Nikolay Shiryaev
Expert
“International financial center”