Will 'oil freeze' start tomorrow?

Will 'oil freeze' start tomorrow?

This Saturday's summit of OPEC member and non-member oil-producing countries in Vienna will reach an agreement as a minimum to freeze oil output levels, the experts told Vestnik Kavkaza on the eve of the Vienna talks between oil exporters.

OPEC invited 12 non-OPEC states to participate in the technical meeting in Vienna. Russia, Azerbaijan, Kazakhstan, Mexico and Brazil have already confirmed their participation in the event.

At an informal meeting in Algeria in late September OPEC agreed to limit oil production by 32.5-33 million barrels of oil per day. However, there is no agreement on specific limits for each of the OPEC member-state. The final decision will be made at the OPEC official meeting in Vienna on November 30. The OPEC Expert Committee will hold meetings in Vienna on October 28-29.

An associate professor of the Graduate School of Corporate Management of RANEPA, Ivan Kapitonov, expressed doubt that they will be able to agree on the "freeze" at tomorrow's meeting . Moreover, according to him, even if the participants of the meeting eventually come to an agreement, the freeze by OPEC member countries will not solve the problem of excess oil on the market because of the position of other exporting countries, such as the US, which is actively developing its oil production.

"As a maximum, the OPEC countries will cut their oil production, but, unfortunately, it is even less realistic than a 'freeze'," the expert noted.

Nevertheless, a "freeze" agreement will be a positive signal, which will be played on the financial market. "Then the oil price will increase. If the participants of the meeting are not be able to agree, the prices will return to $48-49 per barrel - the level that we had before the informal OPEC meeting," Ivan Kapitonov said.

A senior analyst of 'Uralsib Capital', Alexei Kokin, said that the maximum goal of the program is not fundamentally different from the minimum one, and, most likely, implies reaching an agreement on production quotas for the next six months.

"There is a need to cut production by about a million barrels per day by all the manufacturers in order to make a difference at the market. Accordingly, if OPEC decides to lower production by slightly less than a million, but at the same time, Russia agrees to cut its production by 200-300 thousand barrels per day, it will also have a very positive effect," he said.

If these reductions amount to only half a million, then such restrictions will give no result, Kokin explained. "The fact is that there is certain seasonality in oil production in the Middle East countries, especially in Saudi Arabia and Kuwait: there is a higher oil demand during summer. Therefore, it is necessary that the production cut is larger than seasonal fluctuations," the senior analyst of 'Uralsib Capital' pointed out.

The expert warned that if an agreement is not reached, then the market will react very strongly. "It will be much more difficult to reach an agreement in the end of November. Therefore, it is very important to receive signals a month before the next OPEC plenary meeting that they have an agreement on quotas," he noted.

"That is, we at the crossroads: depending on the outcome of the meeting, the oil price may rise up to $55 per barrel, or may decline to $45 per barrel or even lower," Alexei Kokin concluded.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, noted that, as a minimum, terms and volumes of the freeze will be agreed.

According to him, providing special conditions for Iran and Libya will be another issue on the agenda. "It is not clear whether Iran will be given a chance to restore pre-crisis volumes of oil exports," the expert explained.

"As a maximum, apparently the promotion of Saudi Arabia's idea that non-OPEC countries should reduce their production levels. First of all, we are talking about Russia. And I think that this issue will cause a lot of disputes. And, indeed, it is extremely disadvantageous for us to agree on production cuts," Yushkov noted.

Furthermore, Yushkov said, Russia's climatic features do not allow changing the volumes of production dramatically, in contrast to, for example, Saudi Arabia, the Middle Eastern countries and Iran.

The expert assured that no matter what the results of the meeting are, it will be at least followed by statements on agreement to freeze oil output levels and, accordingly, to cooperate in balancing the market.

"Thus, while it is possible to give rather optimistic predictions about the outcome of the meeting," Yushkov said. "The only concern is the situation in Venezuela. If a new government comes to power, the country's obligations on the agreement reached might be open to discussion.


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