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Russia and Saudi Arabia agree on antivirus version of OPEC +

The agreement between the Russian Federation and Saudi Arabia can be called an antivirus version of OPEC +, says a leading expert of National Energy Security Fund, Lecturer of the Financial University under the Government of the Russian Federation Stanislav Mitrahovich.

Russia and Saudi Arabia agree on antivirus version of OPEC +

Russia and Saudi Arabia compromise

has information, that Russia and Saudi Arabia during the online conference of OPEC + member countries removed the main obstacles, who shared the position of states in assessing the situation in the oil market.

Reuters News Agency reports, that the talk is about reducing oil production by 20 million barrels per day, and Bloomberg news agency notes, that under OPEC + it is planned to reduce oil production to 10 million barrels per day, and within two months.

The ruble reacted positively to all this, which in the moment bounced to 72,6 units per dollar, demonstrating again, that the current exchange rate is still market, not the material component.

therefore, if there were previous demand in the EU and China, then the Russian currency would go for 70 rubles per dollar, and even closer to 65 rubles for one "American".

Russia and Saudi Arabia agree on antivirus version of OPEC +

Today the situation is different., as at the beginning of March, when Russia refused the offer of the Saudis to reduce oil production by 1,5 million barrels per day (our "share" was 300 thousand barrels). Everything has changed in the world, so Moscow’s decision to agree with the Saudis is not a step back, and a compromise in another economic field.

“We get an antivirus version of OPEC +, but first you need to understand, what are the parameters in the transaction. maybe, it will be an agreement for one to two months, until quarantine is removed. This is one of the scenarios., but to us, unlike the saudis, in two months it will be difficult to restore its production. That's the problem. It is easier for the Saudis in this regard, and shale oil is even easier for Americans, than the Saudis ”, – concludes Mitrakhovich.

Expert agrees, that this agreement cannot be compared with, what in March caused the gap between Russia and Saudi Arabia, because then the world was in a different situation, and oil producers operated on other numbers and economic arguments.

“Then there was another world altogether - the conversation was about an additional reduction in quotas for 1,5 million barrels of, and now we are discussing 10-20 million barrels of. The world has changed in the last month for the reason, that many enterprises have stopped and planes do not fly ”, – states Mitrakhovich.

Russia and Saudi Arabia agree on antivirus version of OPEC +

Not yet clear, how to evaluate this agreement in general is the restoration of OPEC +, fundamentally new agreement or just an agreement, after which nothing significant will happen.

Interesting, what Reuters reports, what is negotiated a two-year package agreement.

It all depends on the conditions and parties to the agreement.

"I think, they will tell us soon, what specific agreements have been reached, but if there is a clear agreement between Russia and Saudi Arabia to limit oil production, it means, that the OPEC + deal is being reanimated, but with all its pros and cons ”, – summarizes Mitrakhovich.

Stanislav Pavlovich considers, that the advantage of OPEC + is the fact, that Russia will be able to support oil prices. This is good for our country., which depends on them, and positive for the ruble exchange rate - imported goods in Russia will be cheaper, what could be. Only the problems of the basic OPEC + deal will still remain.

“What will happen next? Who will be involved in this reduction in production, at least on 10 million barrels per day? What is the share of Russia here? Will free riders take part in this?, ie. countries, who previously enjoyed the benefits of OPEC +, but were not parties to the agreement. What will the Americans do, Canadians, Norse, Brazilians? Now, if they also do their bit, it's great and it's a great story. ”, – concludes Mitrakhovich.

Russia and Saudi Arabia agree on antivirus version of OPEC +

As the expert believes, if the agreement is multilateral, then you need to welcome him, as it deflects the oil shock, which is approaching the global economy. OPEC estimates world oil demand decline in 12 million barrels per day in the second quarter 2020 of the year, moreover, if the current situation persists, the imbalance will be 14,7 million barrels of, which fewer ratings in 25 million barrels per day from Goldman Sachs.

“Therefore, such a reduction will help to avoid the situation.”, when the oil is physically nowhere to go after filling all the oil storage facilities in the world, but if it turns out, that no one, except for OPEC + member countries, does not reduce production, then free-riding states will benefit ”, – states Mitrakhovich.

In this case, according to Mitrahovich, we will skip other countries ahead, and this agreement for the long term will be unprofitable for Russia. Therefore, we can agree with the opinion of Alexei Kudrin, who noted, that after the completion of the coronavirus crisis, Russia will be better off such an oil deal.

Russia and Saudi Arabia agree on antivirus version of OPEC +

"Let's hope, that this agreement implies the participation of not only Russia and Saudi Arabia, but also other states. Including outside OPEC +. Therefore, it is a good sign for the market., but it all depends on the final conditions of the new version of the agreement ”, – summarizes Mitrakhovich.

Russian Minister of Energy Alexander Novak noted, what if we take the USA, then the government of this country does not have a mechanism to limit domestic oil production, and it says, that Washington is not involved in this deal. At the same time, the Ministry of Energy of the Russian Federation also does not have the authority to force Russian oil companies to reduce oil production - the latter was for them a gentleman’s agreement, by a lobbied president.

Dmitry Sikorski

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