Russia and Saudi Arabia Will Agree on Oil Production Quotas in 2024
At the ministerial meeting of OPEC+ participants, which will take place on November 30 after a six-month break, a decision will be made on the alliance’s actions next year. The main intrigue is whether OPEC+ will increase production cuts or leave the previous agreements in force.
According to them, in 2024, for the first time, the quotas of the two leaders of the deal – Russia and Saudi Arabia – will diverge. Our country will reduce production the most – to 9.8 million barrels per day (b/d), Saudi Arabia – to 10.5 million b/d. But this does not take into account voluntary layoffs. Here, in 2023, Saudi Arabia remains ahead of everyone, having additionally removed 1 million b/d from the market. And the kingdom may well extend its obligations until 2024.
Russia, after the once again increased discount on our oil, needs an increase in world prices in order to fill the budget. EU and US sanctions can effectively work against our oil exports only if there is no shortage of oil on the market. If demand outstrips supply, no restrictions will be able to restrain the rise in price of Russian raw materials. Therefore, our country will not be against additional production cuts.
In turn, the United States and the EU do not lose hope that the deal will either fall apart altogether, or the participating countries will decide to increase production. Western media headlines in recent months have been full of news about disagreements within the alliance – incomplete fulfillment of the terms of the deal by Russia, intentions to increase production in the UAE and dissatisfaction with the behavior of partners in Saudi Arabia.
Barrel prices are also far from stable. Only a simple postponement of the meeting from November 26 to November 30 sharply collapsed, albeit briefly, oil prices by 5%. Over the past six months, the cost of a barrel of the reference grade Brent fluctuated from 71 to 96.5 dollars, and now balances at about 80 dollars. For OPEC+ this is the lower limit of the acceptable price, but for the USA, EU, China and others it is expensive. It is not surprising that the information background around the upcoming meeting is very different in oil-importing and oil-exporting countries.
“In the West, the topic of the conflict between Russia and Saudi Arabia is being inflated,” says the head of the National Energy Security Fund, Konstantin Simonov. “They constantly write that the Saudis are unhappy because our country deviates from the norms, allegedly does not fulfill its voluntarily assumed obligations. But in OPEC countries + the press writes that there are disagreements only with the African participants in the deal – Angola and Nigeria, who do not want to further reduce production.”
However, in both cases there is a troubling aspect for the alliance, since it involves recognizing differences of opinion within the deal regarding production levels. It is clear that problems with Africa will not cause the collapse of OPEC+. The price level above $80 per barrel is not critical, but some decisions may have to be made regarding additional quotas for 2024. For example, Saudi Arabia could extend its voluntary reduction by 1 million b/d plus take on another 0.5 million b/d, and Russia could reduce production by an additional 0.5 million b/d, Simonov believes.
If the demand for oil in the world exceeds supply, then no sanctions will be able to restrain the rise in price of Russian raw materials At the same time, many believe that the deal will not be adjusted. As Freedom Finance Global analyst Vladimir Chernov notes, OPEC has repeatedly called a level of $90 per barrel of Brent comfortable for them, and a deviation of 10% in one direction or another is quite acceptable. Last time, in June, an additional reduction in production by OPEC+ countries followed the backdrop of a drop in the price of Brent to $72 per barrel, and while oil was trading above $80, production volumes were not reduced.
According to Chernov, while the price of Brent is trading above $80 per barrel, additional reduction may not be required, or it will be small.
From the point of view of Kirill Rodionov, an expert at the Institute for the Development of Technologies of the Fuel and Energy Complex, maintaining the status quo would be the most preferable solution for OPEC+. The difficulty of the current round of OPEC+ negotiations is that prices have already won back the previous wave of demand compression, which was associated with the May reduction of quotas by 1.66 million bpd, as well as the decision of Saudi Arabia to voluntarily reduce production by 1 million bpd starting from July 2023, which was then extended until December. These decisions ensured a deficit in the oil market, which reached 90 thousand bpd in the third quarter of 2023. But now the market has again become surplus, largely due to the increase in oil production in non-OPEC+ countries, the expert believes.
If OPEC+ cuts production again, it will increase in other countries. Therefore, it would be optimal to maintain the status quo, which would also imply the extension of Saudi Arabia’s decision to voluntarily reduce production by 1 million bpd, at least for the first half of 2024, Rodionov notes.
At the same time, there are a number of countries that may insist on increasing production. According to Chernov, these are Nigeria, Congo and Angola. But we are talking here about 200-300 thousand bpd, and such volumes can hardly seriously affect the balance of the market.
