The International Energy Agency (IEA) has downgraded its forecast on growth of oil demand in 2017. According to updated data, the growth of demand for the "black gold" will amount to 1.2 million barrels per day compared to 1.4 million barrels per day this year. The IEA explains that the reduction of demand growth rates is due to slower economic growth against the background of supply growth. Yesterday, Russian Energy Minister Alexander Novak said that Moscow is ready to continue the dialogue with OPEC. Will there be new talks with OPEC member-states on a freezing of oil output in order to stabilize oil prices, and will they be successful? The leading analyst of the National Energy Security Fund, lecturer at the Financial University under the government of Russia, Igor Yushkov, answered these questions in an interview with Vestnik Kavkaza.
- Have previous negotiations affected the oil prices in any way?
- It's difficult to say what exactly affects the prices. When there was the first wave of negotiations about a possible freeze in April, the prices really increased during the preparation for this meeting. But it's hard to say whether they were affected by this meeting itself or some other factors. It is likely that speculators reacted to the news about the upcoming meeting. But there were also other factors that affected the market. For example, when oil prices dropped to $28 per barrel in January, projects around the world were shut down, including shale projects in the US. I think that these production factors actually attracted much more attention from traders than the meeting itself.
But why not announce the meeting once again, not meet, at least sign an inessential memorandum of understanding and coordinate positions in the oil markets? Perhaps it will bring benefits – at least oil will cost more than $50. Perhaps traders will believe this story and start to buy futures. When the demand for futures increases, prices will rise. But even if this meeting collapses, a lot of statements will still be made during it.
Willingness to start talks has already been expressed by Russia and Saudi Arabia. Although it was Saudi Arabia that disrupted the previous meeting. Nevertheless, traders view these statements positively, and oil proces begin to grow. Perhaps the minister will visit Doha, Riyadh or another place in September. Speaking about freezing oil output levels, Russia still won't lose anything. We have already maxed out output levels, we have set an historic record in the post-Soviet period. If we could produce more, we would already do so. We simply can't increase them significantly.
- Is it possible that producing countries will reach agreement in the future?
- They can sign an evasive declaration or not sign anything. It is possible to sign some agreement in the framework of OPEC, because this organization has tools, its members have experience of coordinating output levels and can adjust them. But when it comes to an agreement between OPEC and Russia or OPEC and exporting countries outside OPEC, it gets much more complicated. Even if the Russian minister will sign this document, how will our Energy Ministry adjust output levels? It has no legal right to do so. Companies decide it themselves, without coordinating it with the Energy Ministry. On the other hand, if the minister will sign this document, Vladimir Putin may meet with representatives of oil companies and say: "Gentlemen, let's make a tacit agreement, and please, don't produce more than a certain level, or more than you produced previously." The Energy Ministry has a department called the Central Dispatch Administration. It gathers statistics regarding output level, so it knows all of this. But we still don't have a formal regulation mechanism.
There is a number of other issues. For example, will we agree that we will regulate production in our country only, or will we also regulate Russian companies in other countries? For example, in 2015 Iraq demonstrated the largest growth of output levels in the world, but only thanks to the 'West Qurna-2' project, developed by Russia's Lukoil. The question arises, which authorities should regulate Lukoil's production in Iraq – Russian or Iraqi?
So I doubt that any binding agreement will be signed. A lot of work should be done before that. There is a lack of trust between OPEC countries, but there is even greater lack of trust between the countries outside OPEC. In fact, in the entire history of OPEC no one except Saudi Arabia itself fulfilled quotas. Right now, Venezuela, which has big economic problems and is basically clinging to the last straw, is taking the initiative. If they agree to freeze oil output levels now, Venezuela will increase them to get more money. Everyone understands that Venezuela will not limit itself, it just wants to raise prices. No one trusts anyone, so even if this agreement is signed, it is unlikely that it will be fulfilled.
