It has been incredibly difficult for Russia and the Organization of the Petroleum Exporting Countries (OPEC) to reach an agreement on extending record oil production cuts. Both Russia and Saudi Arabia have been pushing for all other OPEC members to extend their production cuts throughout the whole of last week, after the two countries agreed to extend their own record cuts throughout July. Nonetheless, Riyadh would prefer to see these cuts extended throughout August, going further than their Russian counterpart.
In April, OPEC+ producers agreed to cut supply by a staggering 9.7 million barrels per day during the period of May to June as a result of prices collapsing during the coronavirus pandemic.
Iraq and Nigeria Have Caused Problems
OPEC and non-OPEC allies were originally due to meet from June 9 to 10 to review their production cuts, but Algeria, which currently holds the OPEC presidency, insisted that this meeting should have been brought forward to last Thursday. However, that did not happen because Iraq and Nigeria both failed to agree that they need to deepen their production cuts sooner.
The uncertainty of an OPEC+ meeting caused the markets to suffer last week. Brent crude futures traded at $39.50 a barrel, but this represented a value that was down by 0.6 percent. The international benchmark rose above $40 a barrel for the first time since March 6th, according to CNBC, before eradicating those gains amid OPEC+ uncertainty.
Markets Respond Positively to OPEC+ Meeting
Despite this, Reuters reports that Russia and OPEC were able to meet on Saturday and they agreed to extend record oil production cuts. The Iraqi Government agreed that they would cut output and confirmed that they would reach a settlement with oil majors working in the nation to curtail production. Nigeria stated that it would also aim to comply with this new agreement.
The meeting took place via video conferences between OPEC members first and then OPEC+ members later.
The draft OPEC+ declaration said a joint ministerial monitoring committee would now meet once a month until the end of the year to discuss the market situation.
The markets reacted positively to the news. Global benchmark Brent crude LCOcl increased by 6 percent to a three-month high above $42 on Friday, which is remarkable considering it decreased to below $20 a barrel two months ago.
The US Has Been Absent from these Discussions
Regardless, the US has had very little involvement in these discussions. Trump said he was happy with the price recovery before Saturday’s meeting. This is because there is no global body that all oil producing nations are a member of, which makes it incredibly difficult for there to be an effective dialogue between all oil-producing nations.
Oil production also tends to stir trouble between some of the world’s leading oil producers. OPEC, Russia and the US all tend to rival each other. As Opeoluwa Dapo-Thomas of Nairametrics argues, Moscow is solely interested in increasing its market share and winning its competition with US shale oil.
Rakesh Sharma of Investopedia believes that the discovery of US shale oil will hinder OPEC’s monopoly over oil prices in the future. America’s oil production was 12 million barrels per day in 2019, but whilst OPEC maintains its clout in being the world’s top exporter, they still determine the price of oil.
US-OPEC+ Rivalry Will Continue into the Future
This does not create a stable oil market in the long-term. As Bloomberg’s Christof Ruehl suggests, Gulf nations should be allowed to sell whatever quantity of oil they desire. This would enable a variety of oil companies to emerge and Russian companies with low production costs would benefit from such a market. Unconventional organizations would then produce the residual, and the cost at which they are capable of doing so would determine the global price of oil.
Therefore, Saturday’s deal between Russia and OPEC nations may have brought relief to the markets, but there cannot be true stability on the oil markets until the Russian, American and OPEC governments end their interference in the oil industry altogether. For now, it appears as if the US and the OPEC+ participants will continue to rival each other, but the day where the latter loses its clout to the former may soon come.