The oil market is traditionally important for Russia. Even more important it is for Saudi Arabia. But I guess its prospects Moscow and Riyadh are estimated differently. Oil prices, having noted this discrepancy, react fall.
What is more important: economic interests or ideological values? In the modern world, often outweigh the first, materialism takes its toll. It puts in its political confrontation with the West, Russia. While for the calculation was justified, it is necessary to meet economic challenges. Russia is not enough to offer only the West pipeline oil and gas, conventional hydrocarbons become stronger competitors — shale counterparts from the US and the global development of liquefied natural gas, the impact on the market. But a new situation in the oil market is allowed to find the ground for rapprochement until recently, almost the antagonists of Moscow and Riyadh. It took them a joint response — and he followed.
November 30, 2016 an agreement was signed OPEC+. The largest oil countries (except USA and Norway) agreed to coordinate their export policy by setting quotas for oil production. The core of the agreement were Russia and Saudi Arabia. In October 2017, held a historic visit to Moscow by Saudi Arabia”s king Salman bin Abdul-Aziz al Saud. It resulted in the extension of political, economic and even military-technical cooperation between the two countries.
It would seem that this “front” things, the agreement OPEC+ extended to 2018. However, it seems that “honeymoon” in relations between Moscow and Riyadh ends. Why?
The whole thing again in economy. Saudi Arabia sees a change in the oil market and draws conclusions. Crown Prince Mohammed bin Salman has put forward the program of modernization of the country and diversify its economy through the development not only of Energy, including solar and even nuclear energy, but primarily the financial sector. Everything needs money. It would seem that Saudi Arabia is not a problem. But the period of low oil prices has an impact on its financial position. The Kingdom was forced to resort to external borrowing. Meanwhile, for the transformations conceived by the Foundation for public investment of $230 billion. the Main sources of the two nationalized the means of many members of the Royal family, implicated in corruption and the placing on the market of shares of the largest oil company, Saudi Aramco.
It is these stocks and are a stumbling block. Initially the IPO was scheduled for 2018, and now it is postponed to 2019 and, according to sources in the United States, will be held before April 2019. If at all possible.
Until recently, Saudi Arabia is trying as a starting position for the withdrawal of Saudi Aramco on the market to achieve its capitalization of $2 trillion and the problem with it, primarily because of the lack of openness of the company and the lack of clarity with its resource base. $2 trillion is not a whim or a craving for record only round figures. At a cap placement sold five per cent shareholding must bring at least $100 billion, and they are required for filling the Foundation of public investment.
The latest information is that the first stage — that is to say, the run — placement shares of Saudi Aramco can occur at home Saudi stock exchange Tadawul. Thus it is possible to avoid the risks related to satisfaction of all requirements for the openness of the world’s leading exchanges. If “run” is successful, a further placement can take place in new York or London.
All this is fascinating, but what does Russia? Yeah, it is. In fact, to realize the aim by market capitalization Saudi Aramco or, at least, to receive for its shares the necessary money, the need to achieve not just high oil prices, but also provide the prospect of further growth of capitalization of the company, which is interested first and foremost an investor. So, Saudi Arabia will insist on the extension of the agreement OPEC+ and after 2018 to support oil prices.
It is in this context necessary to assess the information that the Monitoring Committee that monitors the implementation of the agreement OPEC+, discussed the possible options for changing the calculations of the target level of commercial oil reserves in the world. It is on the level of these reserves are oriented countries-participants of the agreement, evaluating its results. The goal is to achieve a balance in the market. Quantitatively, as agreed at the OPEC+, it is accepted for return to inventory level, the average for the previous five years. The monitoring Committee may propose to revise the calculation, taking as its base the average inventory level is not over 5 and 7 years. Bloomberg commented: such an increase “would delay the achievement of the goal to reduce commercial inventories to normal levels, this could potentially require countries to take longer to cut oil production”.
And what about Russia? Recently the Minister of energy Alexander Novak said the same Bloomberg that Russia may withdraw from the transaction to reduce oil production OPEC+ after the restoration of the balance in the market, and it is, in his estimation, will happen in the second half of 2018.
His contribution made and the Minister of Finance Anton Siluanov. He said that his Ministry intends to budget 2019 oil price of $40 per barrel. According to the Minister, it is a way to insure against falling oil prices. The Ministry of Finance, of course, will be happy and if to call things by their names, probably counting on prices above $40, which will replenish the reserves and to get the coveted budget surplus, which from an economic point of view not justified and is a minfinovsky fetish. But the lighthouse itself is $40 means that Russia is ready to withdraw from the agreement OPEC+, this signal receives the market.
Of course, the game has not been played yet. Without Vladimir Putin a question about Russian participation in OPEC+ or withdrawal from the agreement will not be solved. But while it seems that Ministers under the banner of the struggle for a healthy budget or support economic growth, which is negative, by the Ministry of economic development, due to the restraint in oil production (despite the fact that when this restraint was not a fact of low oil prices, of course, was called to the same Ministry one of the main reasons for the drop in GDP), effectively lobby interests of the oil companies. Oil producers ready to fight for a niche in the market, believing that prices drop they will survive, but for the interests of the state budget is not the answer.
The agreement OPEC+, of course, not forever. But while there is no insurance against the recurrence of irrational race of oil production and accelerating the fall in prices that led the Russian economy into crisis. Lessons need to be learned.