US oil depreciates OPEC agreement

US oil depreciates OPEC agreement

The cost of Brent crude oil decline bellow $51 per barrel for the first time since November 30, 2016.

As of 5:44 (MSK) the prices of May futures for Brent oil fell by 0.70% to $50.94 per dollar on the ICE Exchange in London. The April futures for WTI oil decreased by 0.85% to $48.08 per barrel at the New York Mercantile Exchange (NYMEX), as of 5:44 (MSK).

Oil prices have begun falling after the last publication of the US Energy Ministry on commercial oil reserves during the week ending March 3, 2017, which grew by 8.22 million barrels per weeks vs. the estimated 1.97 million. During the period from March 8 to 10, the prices of May futures for Brent fell by almost $5.

On November 30, 2016, OPEC countries agreed in Vienna on reducing oil production by 1.2 million barrels per day, with a daily cartel-wide cap standing at 32.5 million barrels. Non-OPEC countries agreed to reduce output by 558,000 barrels a day. Russia pledged to cut production by 300,000 barrels daily.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, speaking to Vestnik Kavkaza, noted that a decline in oil prices after a three-month growth was quite expected. "The decrease in the production in the OPEC countries and the other exporters that joined them raised prices, which made some of the projects of US oil producers profitable.The question is whether the OPEC countries will somehow encourage traders to purchase futures," he stressed.

In this regard, we can expect the oil price declining below the psychological threshold of $50 per barrel. "If there are news about the US increasing production, and China reducing its oil consumption, a drop in prices below $50 per barrel is likely. On the other hand, for example, if all the OPEC agreement participants cut output volumes early, it can raise prices to $52-53 per barrel," the expert believes.

Igor Yushkov stressed that the oil price above $50 per barrel will contribute to the extension of the OPEC agreement. "If the oil price does not fall below this level by May, it is possible that the countries will agree to extend the agreement. And if oil is cheaper, it is likely that certain parties to the agreement may refuse," the leading analyst of the National Energy Security Fund explained.

The new decline in oil prices will be more difficult for business, he predicts. "If prices fall again to $40 per barrel, shale companies will be the first to suffer. Which means that no one else will invest in large projects for another two years, and after 5-7 years a severe oil shortage will form due to a long-term lack of investment in oil production. Then oil prices will grow very noticeably," Igor Yushkov expects.

The executive vice-president of NewTech Services, professor of the Gubkin Russian State University of Oil and Gas, Valery Bessel, in turn, drew attention to the fact that the US oil production will always neutralize the effect of reduced oil production in other countries.

"Now there is a struggle for oil markets, and all countries will continue to be present in all markets, including Russia, selling oil at any price. In my opinion, a corridor of $50-55 per barrel will present on the market in the future, since it is comfortable enough, including for the production of shale oil," he pointed out.

Valery Bessel expects that in the future the OPEC agreement will not be prolonged, however, it will not cause the collapse of oil prices. "Oil is balanced around the price most comfortable for virtually all oil producers, almost completely compensating the cost of oil production from shale deposits in the US," the professor of the Rostov State University of Oil and Gas concluded.