Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd

[Tom Kirkman + 8,860]

The upcoming OPEC meeting should be lively.  Pretty much expecting a virtual food fight between Saudi Arabia + Russia vs. the rest of OPEC nations.  After the food fight, I'm expecting an increase from Russia + Saudi Arabia, perhaps a compromise of 500k bpd.

Going into the food fight, Russia is calling for 1.5m bpd increase, knowing full well Iran and most of the remaining OPEC nations either don't want or are unable to increase production.

Hence my guestimate of an overall compromise of 500k bpd increase by Russia + Saudi Arabia.  Should know by tomorrow.

(Note: This FT article below will probably get a paywall put up if you use the link below.  Easily bypassed by doing a Google search of the article title or copy&paste 1 sentence from the article, as FT usually doesn't use paywall blocks for their articles found by Google search.)

Russia’s energy minister calls for end to oil supply cuts

"... Moscow wanted the Opec and allied producers to allow 1.5m barrels a day to return to the market, Russian energy minister Alexander Novak told reporters in Minsk on Tuesday. At the Opec+ meeting in Vienna this week, “we propose that this possibility [of increasing production by 1.5m barrels a day] be considered.”

Mr Novak said prices were “balanced” enough to absorb such a steep production hike. “You see that although the information that such a question will be discussed has making the rounds in the media already for a while, the market is reacting quite calmly. And the price is staying within a range of two dollars at a level of US$74-US$75,” Mr Novak said."

[Sebastian Meana + 278]

Saudi Arabia already know that their conventional oil wells are going to dry out, that's why they need a high price barrell for a good chunk of time to direct that money to other things apart from crude exports, in the 2006 some ex leaders of aramco warned that the real oil reserves of saudi arabia could be a 40% lower than the estimated

Who knows, Saudi Arabia might have by now less than 100 billion barrels, oil for 27 years at current production rates, good luck with that, they know they need to search for kerogenic gas and oil basins, develop methane hydrates, search for algae based oil, buy nuclear reactors to produce oil even cheaper, developing a tourism economy, and so on... That will take a while. The Saudi family is desperate for higher oil prices.

Russia, is not an new USA, not even close, but isn't as f*cked as many one think, Russia is a petroleum exporting country but not a petrolist state, they have other sectors apart from oil and gas, like agriculture, nuclear industry, maybe aeronautics in a not so near future, steel and aluminium, military exports, and so on... And with global warming, making siberia less cold they can use their sedimentary basins in siberia, put all of the oil directly in tankers and navigating trough the Lena, Yenisei, and Obi to Japan, Korea, Southeast Asia, China, parts of Africa or  whatever with a low cost. Saudi Arabia can't do that and it has Iran which they did maintain a centuries old rivalry that had be quite fierce in the late 40 years and could someday go into war unless they calm each to other.

Russia has a decreasing population, that really true, they have to put all young population into technical training and engineering, and get some help of the Germans to take advantage of their resources, and if possible try to commerce in Roubles to not get large inflation, Private companies will always prefer to use dollars because is a more stable more powerful currency, but Russia is Gazprom and Gazprom is Russia.

The Russians just can't compete against the US in this new world of energy without external help (at-least until 2040's when they should have a stabilized population), but the Saudis can't neither compete against the Russians.

[DanilKa + 443]

interesting post, Sebastian Meana - cannot find a single sentence to agree with. You may want to consider writing shorter sentences...  

disclaimer - I'm Russian; somewhat familiar with Saudi reserves, conventional and unconventional oil.

[NickW + 2,714]

14 hours ago, Sebastian Meana said:

Saudi Arabia already know that their conventional oil wells are going to dry out, that's why they need a high price barrell for a good chunk of time to direct that money to other things apart from crude exports, in the 2006 some ex leaders of aramco warned that the real oil reserves of saudi arabia could be a 40% lower than the estimated

Who knows, Saudi Arabia might have by now less than 100 billion barrels, oil for 27 years at current production rates, good luck with that, they know they need to search for kerogenic gas and oil basins, develop methane hydrates, search for algae based oil, buy nuclear reactors to produce oil even cheaper, developing a tourism economy, and so on... That will take a while. The Saudi family is desperate for higher oil prices.

Russia, is not an new USA, not even close, but isn't as f*cked as many one think, Russia is a petroleum exporting country but not a petrolist state, they have other sectors apart from oil and gas, like agriculture, nuclear industry, maybe aeronautics in a not so near future, steel and aluminium, military exports, and so on... And with global warming, making siberia less cold they can use their sedimentary basins in siberia, put all of the oil directly in tankers and navigating trough the Lena, Yenisei, and Obi to Japan, Korea, Southeast Asia, China, parts of Africa or  whatever with a low cost. Saudi Arabia can't do that and it has Iran which they did maintain a centuries old rivalry that had be quite fierce in the late 40 years and could someday go into war unless they calm each to other.

Russia has a decreasing population, that really true, they have to put all young population into technical training and engineering, and get some help of the Germans to take advantage of their resources, and if possible try to commerce in Roubles to not get large inflation, Private companies will always prefer to use dollars because is a more stable more powerful currency, but Russia is Gazprom and Gazprom is Russia.

The Russians just can't compete against the US in this new world of energy without external help (at-least until 2040's when they should have a stabilized population), but the Saudis can't neither compete against the Russians.

One slight flaw in your argument - the Saudis are pushing for increased production.  

[Sebastian Meana + 278]

2 hours ago, NickW said:

One slight flaw in your argument - the Saudis are pushing for increased production.  

Well, there you go higher production rates + higher price to prepare for the possibility of an post-oil Saudi Arabia.

[Tom Kirkman + 8,860]

20 hours ago, Tom Kirkman said:

Going into the food fight, Russia is calling for 1.5m bpd increase, knowing full well Iran and most of the remaining OPEC nations either don't want or are unable to increase production.

Hence my guestimate of an overall compromise of 500k bpd increase by Russia + Saudi Arabia.  Should know by tomorrow.

Seems Oil Price's Nick Cunningham and I have similar views on this.  Today's headline article on the Oil Price main site.

(My time zone is GMT +8, so I'm 12 hours ahead of Nick in Pennsylvania; I'm just seeing his article this morning; I wrote my comment yesterday morning from Malaysia.)

Why OPEC Won't Flood The Oil Market

By Nick Cunningham - Jun 20, 2018, 6:00 PM CDT 

The latest from Vienna is that Russia and Saudi Arabia are leaning towards the aggressive end of the suite of options under consideration, but as always, the negotiations remain fluid. Reuters said that Saudi Arabia and Russia could push a 1.5-million-barrel-per-day increase as a negotiating tactic in order to get the rest of the group to sign on to increases of around 500,000 to 700,000 bpd. In fact, the Wall Street Journal reported that Saudi Arabia was shopping a 500,000-bpd increase to fellow OPEC members this week.

[Guillaume Albasini + 851]

Countries with a spare capacity like Saudi Arabia and Russia have somethng to gain with a production increase but countries without  a spare capacity and those that can't even reach their quota now (Venezuela, Angola...) will be negatively affected by an OPEC production increase meaning for them similar production but probably at lower price.

So the question is what could they get in exchange if they agree to increase the OPEC production ?

I still believe that a mechanism allowing them to rent the unused part of the quota to countries with an unused capacity could be the better way to reach an agreement. The global cut could remain at 1.8 mb/d but shifting quotas traded among countries could allow to increase effective production by shifting the level of compliance from the current 166% to around 100%.

[NickW + 2,714]

14 hours ago, Sebastian Meana said:

Well, there you go higher production rates + higher price to prepare for the possibility of an post-oil Saudi Arabia.

Under the general concept of supply and demand if overall supply goes up then prices tend to go down. 

[Guillaume Albasini + 851]

I've found this interesting study from Don Bredin and Simon James Jeune Spencer of the University College Dublin  on how the forward oil price reacts to the OPEC decisions...

https://theconversation.com/opec-meetings-why-its-so-hard-to-predict-how-the-oil-market-will-react-97522

The most frequent outcome is “no change” in production quotas and previous research has found that prices rise following such decisions.We however have divided the “no change” decisions into those which follow a unanimous decision by members to maintain production unchanged, and those which follow a failure by OPEC members to make a unanimous decision (leading to no change by default). For example during the two OPEC meetings in 2015, both decisions were no change in production. However, the June meeting was based on “agreement to maintain”, while the December meeting was based on “failure to agree”.

We found that the market reacts significantly differently to the two types of no-change decision. Failure to agree decisions lead to higher spot prices and expectations of higher prices, over a prolonged period. This is not the case for agreement to maintain decisions. The implication is that there is more market optimism following an agreement to maintain production and more caution following a failure to agree.

So OPEC members should not be fooled by the current short-run price increases. Though reports suggest an increase in production is likely, they may yet (and, from a purely self-interested point of view, should) decide not to increase their production quotas, at least so long as forward prices remain low.

But there will no doubt be some voices at the table looking to boost production because prices in the short term suggest that more oil could be absorbed by the market.

If there is no quota change, it will be interesting to watch whether members agree to maintain production unchanged, or whether they maintain production unchanged as a result of a failure to agree. Our study shows that when it comes to OPEC decisions, agreement matters.

Edited June 21, 2018 by Guillaume Albasini

[Tom Kirkman + 8,860]

46 minutes ago, NickW said:

Under the general concept of supply and demand if overall supply goes up then prices tend to go down. 

Ah, but the overall supply glut was effectively reduced over the last 18 months or so by OPEC. 

So increasing supply soon should probably balance out the scale a bit, changing from a monthly reduction of supply to a rough balance of monthly production and monthly consumption. 

More toward a relative balance on the global Supply & Demand See Saw.  Which should help balance out the Oil Price See Saw.

 

[NickW + 2,714]

7 hours ago, Tom Kirkman said:

Ah, but the overall supply glut was effectively reduced over the last 18 months or so by OPEC. 

So increasing supply soon should probably balance out the scale a bit, changing from a monthly reduction of supply to a rough balance of monthly production and monthly consumption. 

More toward a relative balance on the global Supply & Demand See Saw.  Which should help balance out the Oil Price See Saw.

 

I was specifically referring to Sebs claim that KSA want higher prices. This is contrary to their current position of wanting OPEC to increase output. 

My own experience with Saudi was that they want to keep oil in the 'goldilocks zone'. High enough to meet domestic needs but not so high it drives buyers to alternatives. The classic lesson their was how oil used in the electric generation market was lost in the 1970's as coal made a major return. 

[Tomasz + 1,608]

I remember than 4 years ago low oil prices was to collapse Russia

4 years later Russia has a budget on 40 dollars assumption and wants to increase a oil supply by 1,5 milion barrels per day immediately. Also today Sechin predicts structural oil deficit in next 10 years. 

Once Bismarck a legendary Prussian/Imperial Germany prime minister said that Russia is not so weak as you would wish and not so strong as they think so. And thats still true after more than 100 years.

Well I informed some users  with antirussian bias that this experienced politician also said>

Do not expect that once taking advantage of Russia's weakness, you will receive dividends forever. Russian has always come for their money. And when they come - do not rely on an agreement signed by you, you are supposed to justify. They are not worth the paper it is written. Therefore, with the Russian is to play fair, or do not play.

The secret of politics? Make a good treaty with Russia.

Edited June 21, 2018 by Tomasz

[Bhimsen Pachawry + 72]

On 6/20/2018 at 9:01 AM, Sebastian Meana said:

Saudi Arabia already know that their conventional oil wells are going to dry out, that's why they need a high price barrell for a good chunk of time to direct that money to other things apart from crude exports, in the 2006 some ex leaders of aramco warned that the real oil reserves of saudi arabia could be a 40% lower than the estimated

Who knows, Saudi Arabia might have by now less than 100 billion barrels, oil for 27 years at current production rates, good luck with that, they know they need to search for kerogenic gas and oil basins, develop methane hydrates, search for algae based oil, buy nuclear reactors to produce oil even cheaper, developing a tourism economy, and so on... That will take a while. The Saudi family is desperate for higher oil prices.

Russia, is not an new USA, not even close, but isn't as f*cked as many one think, Russia is a petroleum exporting country but not a petrolist state, they have other sectors apart from oil and gas, like agriculture, nuclear industry, maybe aeronautics in a not so near future, steel and aluminium, military exports, and so on... And with global warming, making siberia less cold they can use their sedimentary basins in siberia, put all of the oil directly in tankers and navigating trough the Lena, Yenisei, and Obi to Japan, Korea, Southeast Asia, China, parts of Africa or  whatever with a low cost. Saudi Arabia can't do that and it has Iran which they did maintain a centuries old rivalry that had be quite fierce in the late 40 years and could someday go into war unless they calm each to other.

Russia has a decreasing population, that really true, they have to put all young population into technical training and engineering, and get some help of the Germans to take advantage of their resources, and if possible try to commerce in Roubles to not get large inflation, Private companies will always prefer to use dollars because is a more stable more powerful currency, but Russia is Gazprom and Gazprom is Russia.

The Russians just can't compete against the US in this new world of energy without external help (at-least until 2040's when they should have a stabilized population), but the Saudis can't neither compete against the Russians.

 

USA lives on petrodollars and is a petrolist state. Russia has all sorts of industry other than primary sector ones. Russia also has abundance of natural resources including fossil fuels and is more than self sufficient.

USA has the drawback here - USA consumes 20million bpd oil and produces only half of it. The friendly countries that supply USA like Canada, Mexico are also running out of oil. Canadian oil sands need natural gas to heat while extraction and light crude for mixing. Otherwise, oil sands are as good as crushed coal.

USA doesn't have proper railway lines and other interconnectivity between various parts of USA and relies on planes for connecting places. USA also has 70% people in big towns and cities and another 15% in smaller towns. Only 5% indulge in agriculture.

Since all the activities of USA depends on the imported petroleum, the country that is in threat is USA, not Russia.

The decreasing population does put Russia in a difficult spot in terms of strength. It will have some difficulty handling tge crazies of chechnya and the hostile neighborhood. But overall, Russian self sufficiency trumps USA overconsumption.

Edited June 23, 2018 by Bhimsen Pachawry

[Tom Kirkman + 8,860]

^  @Bhimsen Pachawry  I'm upvoting your comment above simply for your remarkably unusual perspective of the U.S.   I've done a fair bit of international travel, and have never heard the U.S. described quite that way before.