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What prospects for OPEC’s June 22nd, 2018 meeting would be expected when Saudi and Russian oil ministers multiply statements since their meeting at the inaugural opening of the World Cup games. The Russian minister finding that the increase in OPEC and non-OPEC production, to 1.5 million barrels would be ” Inevitable “; the balance price not to exceed 70 Dollars. In addition to the meeting of OPEC countries, another meeting will be held in conjunction with non-OPEC member countries. It will be the 9th meeting of the Joint OPEC/Non-OPEC Ministerial Monitoring Committee (JMMC). This is made up of four-member countries of OPEC (Algeria, Saudi Arabia, Kuwait and Venezuela) and two non-member countries OPEC (Russia and Oman).

Meanwhile, we are seeing a particular situation that is in addition to the decline of exports from Venezuela, Libya and the US sanctions against Iran; the US have actually exported record quantities of oil to China in the last six months of 2018 (at 363,000 barrels per day). But the closing of the Chinese borders to American oil, and a possible slowdown of the global economy in this incessant trade war could have a negative impact on the price of oil.

Reminder of the Vienna agreement of 30 November 2016

Following the work of the high-level committee, which has made it possible to resolve tensions between Saudi Arabia and Iran, the last meeting in Vienna in December 2016, allowed all member countries of OPEC and certain non-member countries to reach a reduction agreement and this for the first time since 2008 of oil supply up to 1.8 million barrels/day (Mb/d).

According to the Vienna agreement of December 2016, this agreement having been extended to end 2018, at the meeting of 30 November 2017, the production limits provided for in the agreement affected 11 of the 14 OPEC member countries. The bulk of the agreement of November 30th, 2016 is carried by the largest producers of the cartel: Saudi Arabia, Iraq, United Arab Emirates, Kuwait, while Iran, Nigeria and Libya were exempted. Only Iran has benefited from the most favorable reference with a volume of 3.97 Mb/d withheld (against a level of 3.69 Mb/d, although Iran has wished this period that Its production dates to 4.2 Mb/d. Saudi Arabia’s first world oil exporter, agreed to bring back its production to 10.06Mb/d) and thus reduce its production by 500,000 barrels. The non-OPEC countries present at the meeting agreed to a reduction of 558,000 b/d which is in addition to the 1.2Mb/d reduction of OPEC countries. For non-OPEC, Russia will be the most important of these contributors with a reduction of 300,000 bpd.

 

In fact, the bulk of this decline is ensured by the two largest producers in this heterogeneous group: Russia (-0.3 mb/d) and Mexico (-0.1 mb/d).

The 9 (nine) price of oil determining factors

Brent’s despite the threat of American president was quoted on June 18, 2018 at $75.47 and the WTI at $65.63.  What are the reasons?

I identify nine interdependent determinants of the price of oil for the period between 2018,2020 and 2030, that are essentially exogenous factors.

  • The First reason, is the persistent geostrategic tensions in the Middle East the position of the USA vis a vis the agreement with Iran, that upset the whole OPEC strategy, albeit timidly attenuated by the European position.  These tensions with Iran and the security situation In Iraq, Syria and Yemen have increased the price by at least 7 to $8 b/d. The world had an unparalleled cold winter that also increased demand.
  • The Second, as just highlighted by the IMF and the World Bank in this month of June 2018 is the growth that is likely to fall with both American – European and Chinese – American rivalries on US protectionist measures having a negative impact on international trade, but we must also pay attention to changes in the way of growth as a result of the Fourth World Economic Revolution involving a new model of energy consumption with particular regard to efficiency and mix.
  • The Third, is the overall respect for the quota of members of the OPEC as per agreement of December 2016 in Vienna,
  • The Fourth, is the introduction of the American Shale oil and gas that has upset all the global energy establishment. According to international observers, the desirable price should not be more than 70 Dollars in order not to penalise global growth and avoid the massive entry of US Shale oil and gas from all those numerous marginal deposits that become profitable, thus flooding the market. The Institute of Energy Agency has just indicated in January 2018, that for 2018, US production if the price remains higher than 60 Dollars would exceed for the first time the production of Saudi Arabia.
  • The Fifth, is the agreement out OPEC between Saudi Arabia and Russia; these two countries producing more than 10 MB/d each.
  • The Sixth, is the domestic political situation in Saudi Arabia, the scholarships not yet seeing clear of the action of the Crown prince in the fight against corruption, with the fear of internal political tensions, but above all the sale of 5% shares of a part of ARAMCO, to maintain shares at a high level; sale that has been postponed for 2019.
  • The Seventh, is the tension in Kurdistan, this area producing about 500,000 barrels/day, the decline in Venezuelan production, tensions in Libya and Nigeria
  • The Eighth, is the weakness of the Dollar in relation to the Euro.
  • The Ninth is the decline or rise of US stocks while not forgetting the Chinese stocks.

What prospects then ?

At its next regular meeting to be held on 22 June 2018 in Vienna, OPEC will decide to suspend existing restrictions on the oil production of its member countries, as of 2019? 

According to OPEC data, the difference between $102 and $45 a barrel since June 2014 up to before the straightening of the price resulted in a loss of $1 trillion in terms of revenues and $1 trillion in terms of investment.

The price of $55 reduction has caused a loss of 3.78 billion barrels/year and about $219 billion for OPEC countries.

An OPEC study shows on average that profitability for many OPEC countries and for balancing their budget, the price must be between $60 and $80 depending on the life of the deposits and the costs per country. But many experts wonder on the temptation for producers to ‘make up’ natural declines, linked to the depletion of certain deposits and already integrated into the forecasts, to pass them off as voluntary reductions. OPEC although representing the world’s largest reserves, has no longer the same impact on the market as in the 70s.  Before deciding on a reduction in production of 1.2 million barrels/day, it had only 33% of the world traded production, with the remaining 67% being non-OPEC.  

What lessons can we learn from this? 

The problem will be to review all fossil energy subsidies policies that penalize the energy transition. Every year in the world, $5.30 billion ($10 million per minute) are spent by States to support fossil fuels, according to estimates by the International Monetary Fund (IMF) report for the COP21. However, it seems that the majority of the world’s leaders have become aware of the urgency of moving towards an energy transition. Because if the Chinese, the Indians, the continent of Africa, had the same model of energy consumption as the USA, it would take five times the planet Earth. In the event of a change in the energy consumption model at the global level, the future on the horizon 2030 being Hydrogen, this could influence the level of fossil energy prices down, at horizon between 2025 and 2030.

Dr Abderrahmane Mebtoul, Professor of universities, PhD 1974 – International expert Former Director of studies at Energy Department – SONATRACH 1974/1979-1990/1995-2000/2007  ademmebtoul@gmail.com 

NB – This contribution is a synthesis on this subject – from various interviews to Radio Algeria International Debate – Algerian public Radio Channel 3 – interview with various international television

Contribution to MENA-Forum – London – by Dr. A. Mebtoul “Urgency of a Strategic Vision Articulating the Functions Of the State, Local Authorities and the Market”

 

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