Saudi Arabia has offered Russia to limit oil production for 20 years

The crown Prince of Saudi Arabia Mohammed bin Salman stunned the oil market, saying that Riyadh is negotiating with Moscow on the extension of the agreement to limit the production of “black gold” for another 10-20 years. Most experts were confident that after the expiry of this document at the end of 2018 OPEC members+ will refuse its extension. Uniting the efforts of Russia and Saudi Arabia may provoke a rise in oil prices from $70 to $80 per barrel.


photo: Gennady Cherkasov

Details of the transition from the Memorandum for a period of one to the model, with limited production for 10-20 years, according to Mohammed bin Salman, not yet developed, but a preliminary agreement already exists. When renewing the current agreement at the end of November 2017 Riyadh insisted on at least a two-year extension. Now, apparently, time has increased significantly. However, to speak about any specifics too early. In the agreement for a designated period, said a senior analyst “Alpari” Roman Tkachuk can be spelled out only the main principles of cooperation.

His statement crown Prince did not accidental. In early February, oil prices fell from $70 to $62 a barrel. With the onset of spring has renewed seasonal demand for fuel, and “black gold” has returned itself the lost positions. However, whether this trend in the near future is not clear. Moreover, simultaneously with the resumption of growth in oil prices intensified American manufacturers shale raw materials. In late March, the U. S. came to the historic maximum production of 10.4 million “barrels” per day and has overtaken on this indicator Saudi Arabia.

Additional barrels from the United States is able to destroy the positive trends on the global oil market. Riyadh that is trying to resist, as cheap oil has already led to a significant budget deficit in Saudi Arabia. This year, the Kingdom intends to privatize to 5% of the shares in the national mining Corporation Saudi Aramco and earn at least $100 billion Rollback of the quotes to the level of $60 may interfere with the plans of the Saudis.

However, for Moscow, says financial analyst FxPro Alexander kuptsikevich, creating a unified front with Riyadh, will be sufficiently flexible and effective Union. Long the agreement will allow the prices of “black gold” to be higher than in the absence of quotas, which is beneficial to our budget.

In the long term, according to experts, OPEC+ will have to solve a difficult task — an informal coalition of oil producers will have to count on production quotas so that not to give the Americans a free market share. Activation of the shale companies occurs when the prices of oil near $70. And they are not only increasing production, but also making significant investments in production, thus reducing the costs of extracting hydrocarbons.

In this respect, Saudi Arabia and Russia remains an advantage. The cost of oil production in both countries is $10-20 per barrel, whereas the cost of production of us shale depending on the Deposit can reach $50. Another advantage the traditional raw material — stability in relation to predictions about future cost levels. “In turn, oil shale mining is a young and little known technology. It is not excluded that after you extract the most accessible oil shale debit wells will fall sharply and further production of either will require additional Investicii, or will be unprofitable,” — said Tkachuk.

In any case, the price level will depend mainly on demand from consumers. Currently, experts believe the actual corridor of $50-80 per barrel. According to kuptsikevich companies, the balancing process has lengthened because of the growth in US production, but not turned completely. To maintain quotes at current levels and to provide the stimulus for further growth in able China, demand growth in the next decade will be 1-1. 5% per year.

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