MOSCOW (Pakistan Point News / Sputnik - 07th June, 2020) The extension of the 9.7 million barrels a day oil output cut through July by the OPEC+ oil producers has proved to beneficial for Russia, Mamdouh G Salameh, an international oil economist, told Sputnik.
Earlier in the day, energy ministers from the alliance of OPEC and other oil producers agreed to extend the 9.7 million barrel daily cut for another month until July. The ministers also agreed to hold output cuts monitoring meetings every month for the rest of the year, with the next meeting scheduled for June 18. Russian Energy Minister Alexander Novak said Russian companies were ready to observe the country's reduction quota.
"The extension of the cuts for only one month is a victory for Russia for two reasons. The first is because Russian oil companies particularly Roseneft don't want a longer extension. The second is Russia's belief is that the market could be in deficit by July and that an oil price ranging from $45-$50 a barrel will prevent US shale oil production coming back in force and will also retard expensive oil projects taking off," Salameh, who serves as a visiting professor of energy economics at ESCP Europe business school, London, said.
However, Saudi Arabia, the de-facto leader of OPEC, would have preferred a longer extension of the oil cuts, the expert believes.
"Saudi Arabia would have preferred a longer extension, but it doesn't want to start another strife with Russia. Unlike Russia, Saudi Arabia badly needs higher oil prices and is prepared to do everything in its power to ensure that this is achieved. Abandoning the deal and flooding the market are no longer an option for Saudi Arabia having failed miserably two months ago with its oil price war against Russia," Salameh added.
The other members of OPEC+ would also have preferred a longer extension, the oil economist noted.
"OPEC+ extension of the production cuts of 9.7 million mbd until the end of July is what the global oil market was expecting though the market would have preferred if the extension was for at least three months. Still, it signifies OPEC+ determination to maintain the momentum of the recent surge in oil price," Salameh concluded.
The OPEC+ countries, as well as oil producers from a wider G20 group of nations, such as the United States, Brazil and Canada, reached the oil production cut deal in mid-April. The deal envisages a reduction in oil production by the OPEC+ group by 9.7 million barrels per day for two months starting on May 1, and possibly up to 15 million barrels per day, with the G20 nations taken into account.
The collective effort has been driven by plummeting prices caused by falling demand as transport and industry came to a halt worldwide, especially in China, amid coronavirus pandemic lockdowns.
