Will it be new oil quotas in OPEC?
Since the BRENT oil brand has broken the $ 62 mark per barrel the announcement of a return to oil production quotas within OPEC and in non-cartel countries started to sound louder and louder in the market.
In late 2017 – early 2018, the introduction of restrictions on oil production in OPEC and non-cartel countries, mainly in Russia, became a panacea for cheap oil. As a result, in October 2018 reached the level of 2014. So,
BRENT brand has updated a high of 2018 at $ 86.50 per barrel,
and the mark WTI at around $ 76.90 per barrel.
After that, the market traced the increasing downward correction.
The reason for the decline in oil was the rejection of quotas to restrict production and sanctions the United States against Iran. In fact, it can be called as the one reason since they are related. In the context of the introduction of sanctions against Iran, large oil producers were ready to fight for a filling of the market share. Oil production quotas could cause an increase in the deficit in the face of declining supply and it can create the risks for the global economy.
As a result, sanctions against Iran were introduced in part because of fears of a shortage of supply. It refused quotas, and the largest oil producers continue to fight for market share. Thus, the three largest oil-producing countries are the United States, Saudi Arabia and Russia, which control from one-third to one-half of the oil produced according to various estimates. Countries compete with each other, dividing the oil market shares.
The main supporters of the renewal of production quotas are small countries-producers, which can not increase significantly the volume of oil production and incur large losses on reduce of oil cost, giving way to “the three monopolists of the oil market.”
Quotas are also beneficial to Russia, because even with quatas it will retain its share, and with the higher cost of oil it will increase profits. At the same time, Russia is not a permanent member of OPEC and cannot influence the cartel heavily.
Saudi Arabia remains as the leader of OPEC and it is very profitable for this country to limit oil production. But instead, on the contrary, it is increasing production and export volumes, that can be a signal of a new markets. So now the introduction of quotas is not profitable for it, besides the Saudis have close political ties with the United States, which oppose oil production quotas.
The position of the United States was very clearly described in the statements of the President of the United States to Saudi Arabia, who declared that the King of Saudi Arabia would not last even two weeks without the support of the United States when they spoke about oil quotas.
Summarize. Quotas in OPEC at the December 6 meeting are unlikely to be accepted, relying on the fact that the oil market is stabilizing itself, starting from the balance of supply and demand. It should be noted that the high volatility in the oil market, which is expressed by a rapid decline, is unprofitable for any of the oil producers. Therefore, the attempts to slow down the decline in oil prices couldn’t be excluded and can act as a driver for correction against the background of significant oversold of oil.
Anton Hanzenko