We're not on the same page with the cartel

On March 7, Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), Mohammed Barkindo, said that Russia deserves "automatic entry" into the cartel. The next day, the price of a barrel of Brent fell by 6% and so far continues to fall. Downtrend again?

Immediately after the fall in the price of a barrel of Brent, among oil market observers, a not entirely serious version appeared for interpreting this event: the allegedly capricious market reacted in this way to accusations against Russia from Saudi Arabia - they say that Moscow, contrary to the agreements reached, does not sufficiently reduce own oil production.

In fact, oil prices plunged under the influence of a combination of other factors. This is a significant increase in oil reserves and the activity of drillers in the United States, and the expectation of an increase in the Fed rate and a strengthening dollar, and the prospect of starting to develop resources on the outer continental shelf in the same United States, and lowered demand forecasts in China, and interruptions in the fields in Libya, and Iran's output to a new level of production, and discounts in the price of Saudi oil. Quite material factors are pressing on Brent, while its price is pushed up only by “verbal interventions” of OPEC members, which the market believes less and less.

Saudi Energy Minister Khalid al-Falih, indeed, in a recent interview, reproached Russia for cutting production more slowly than promised. OPEC expected that the Russian oil industry would reduce the average daily production by 100,000 barrels every month and by the end of March would reach a reduction of 300,000 compared to October last year. In fact, by the beginning of March, the reduction was only 160 thousand barrels per day.

Moreover, even this volume of fulfillment of obligations to OPEC declared by the Russian authorities raises doubts. In January, Moscow announced that it had allegedly cut production by 110,000 barrels per day, but admitted that exports had increased by 114,000 barrels. In February, average daily production increased by almost 2%, according to the Central Dispatch Office of the Fuel and Energy Complex (CDU TEK), although the Ministry of Energy reported a decrease of 1.6%.

The situation of 2001-2002 is repeated, when Russia promised OPEC to reduce production and monthly reported on the implementation of the agreement, and at the end of the year there was not a reduction, but an increase by the same volume.

This is exactly where the statement by OPEC Secretary General Mohammed Barkindo that Russia deserves “automatic acceptance” as a member of the organization should be considered. The irony is clearly visible here: our country behaves exactly like other members of the cartel, cheating with production and export figures. Since 1992, OPEC has not met its own quotas limiting production since 1992 ...

In fact, Barkindo's wishes are not destined to come true: other considerations keep the domestic oil industry from joining OPEC. All members of the cartel are able to manipulate production since their governments command the national oil companies. And our Ministry of Energy does not have any real tools for promptly influencing the oil industry, except for good wishes and command pressure from the Kremlin. And this, as practice shows, is absolutely not enough. However, the agreement between the OPEC countries will expire very soon, on June 1, and, according to information from circles close to Energy Minister Alexander Novak, it is unlikely to continue.

Quite material factors are pressing on Brent, while only “verbal interventions” of OPEC members, which the market believes less and less, are pushing its price up