BAKU, Azerbaijan, March 18
By Leman Zeynalova - Trend:
A new format will be needed for the OPEC+ deal to balance the oil market, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend.
He pointed out that OPEC+ is a necessity, to keep market in balance, not only for supply but also to control price levels at a price band that is good for the economy, global growth and keeps investments flowing into the sector to keep production at levels needed.
“Oil and gas production declines every year by 6-12 percent per year, so investments also needed to keep production even at level of current demand/supply,” said the expert.
“OPEC+ will re-emerge but possibly in a different constellation. Russia has been taking on Saud-UAE at present, while officially trying to hit US shale oil. The latter is done, but Russia has been underestimating the willingness of MBS and MBZ (Abu Dhabi) to push a war. The latter is more costly for Moscow, as it is not only hitting oil revenues but also Russian gas interests and revenues (oil price linked),” added Widdershoven.
He noted that a new format will be needed, in which Russia and Former Soviet Union producers will be asked more to follow OPEC than was the case.
“Even that the market still holds Russia’s power high, reality could be different. All the pokercards are now in the hands of Saudi Arabia and UAE. Both will want OPEC+ to survive, but at their terms,” said the expert.
As for the oil prices, Widdershoven said that the option of a price plunge below $20 is more real than ever.
“Current global measures taken by governments, especially EU, to constrain the coronavirus outbreak by lockdowns, lower productivity etc, will have a major effect on global demand for oil. The latter is even increased by the fact that OPEC+ has started a major price war, which is only targeting increased market share at the costs of others. Possible further price plunges are to be considered, if global growth is totally disappearing, and economic fallout in EU-US is growing. Price decreases are also due to negative feelings of investors/hedgefunds on oil and gas demand at present,” said the expert.
He also touched upon the impact of the current situation on US shale oil production.
“Will not be stating “US shale oil is dead”, it will survive, but has been hurt very hard. Financials are totally red, while only survival at present is Washington’s support. Lower prices at present could remove around 2 million bpd of US oil production, if not more, looking at Gulf of Mexico offshore (which is expensive too),” he concluded.
The 178th (Extraordinary) Meeting of the Conference of the Organization of the Petroleum Exporting Countries (OPEC), held in Vienna, Austria, on 5 March 2020, decided to recommend to the 8th OPEC and non-OPEC Ministerial Meeting to extend the adjustment levels agreed at the 177th Meeting of the Conference and the 7th OPEC and non-OPEC Ministerial Meeting for the remainder of the year. It also agreed to recommend to the 8th OPEC and non-OPEC Ministerial Meeting a further adjustment of 1.5 mb/d until 30 June 2020 to be applied pro-rata between OPEC (1.0 mb/d) and non-OPEC producing countries (0.5 mb/d) participating in the Declaration of Cooperation.
However, during the meeting held March 6, OPEC+ failed to reach any agreement on extension of the deal or deepening the cuts further, which led to a significant decline in oil prices.
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