The agreement to cut oil production between OPEC and non-OPEC countries, will balance the oil market in the second half of 2017, OPEC said in its December report. On December 10, it was decided in Vienna that Russia, Azerbaijan, Kazakhstan, Mexico, Oman, Bahrain, Brunei, Malaysia, Equatorial Guinea, Sudan and South Sudan will cut their oil production by 588,000 barrels per day in addition to the 1.164 million barrels per day, which will be cut by OPEC member states.
Director of energy policy, the head of the Energy Department of the Fund ‘Institute of Energy and Finance’, Alexey Gromov, believes that the agreement between Russia and OPEC to cut oil production is profitable for Moscow: "As a rule, in January, the Russian Federation traditionally reaches its maximum oil production level, and in the second quarter there is a seasonal decline in production, which is associated with the reconstruction of oil wells and other technical factors. That is, today we have staked out the potential to cut Russia's oil production at the maximum, which we will have in the first half anyway, and then it will decline due to objective reasons."
According to Gromov, the agreement was reached for six months and, if Russia is not able to fulfill its obligations, it will revise its policy.
The expert believes that the US oil production is another important factor: "In 2014, there was a confidence that US shale production will collapse, but it did not collapse. They believed that most of the US shale projects will be unprofitable if oil prices fall below $75-80 per barrel. But as it turned out after falling prices, most of the projects have survived. The break even point declined sharply. There are projects, which can work at the price of $40 per barrel".
According to Gromov, in the next six months, the countries that have signed an agreement to cut oil production will take a certain test: "Not just in terms of their performance discipline, but also in terms of how the US - 'free rider' will react to changes in the world price quotations, and how rapidly the US shale oil production will increase. It must be monitored, because the phenomenon of shale oil production is new, we have no historical work experience with this phenomenon, it is necessary to conduct a detailed analysis of the situation in the US. Now we see no reason for sharp movements in the US market. If the oil price rises above $60 per barrel, then we will see the reaction of the US. They have shown that their reaction can be very fast. We also cannot say about the collapse today, because there is an understanding in the market that it is necessary to introduce a system of checks and balances. I would call it a system of managed market exposure. And the agreement, which was signed on December 10, was a vivid testimony."
