Oil , OPEC , Russia and the U.S.

With beginning of the autumn, the oil market atmosphere is tending toward boom.

The oil producing countries typically prep themselves for production of bigger volume of oil production. Shares of oil companies due to the rise in the production volume inclines toward moving upward, and in the end, with the start of cold, the oil consumption rises high and higher.

IRAN NEWS POLITICAL DESK

In the current condition, Iran is deprived of selling its crude oil and of course Saudi Arabia and Russia have taken the share of Iran’s oil sale in the markets. The more the climate between China and the U.S. gets colder due to President Donald Trump’s stance, Kremlin is optimistic that it can play a constructive role in reaching a deal for stability in the global oil markets in order that it likely would find a diplomatic opening for improving ties with the U.S.

On the other hand, of course Russia is fully committed to its agreement with Organization of the Petroleum Exporting Countries (OPEC) members for reducing its oil production from 11m bpd to 10m bpd. Of course we should take this point into consideration that long term reduction of production may create operational and geographical problems for some of oil producers of Russia like its major oil and gas producer company (Rosneft). Russia is after lowering some of the U.S. sanctions especially against Rosneft that it is not active in Venezuela any longer.

Technical challenges in the oil sector of Russia may force Moscow probably to go after having access to the capital market for its oil sector and to get assistance from the U.S. industry and technology, but it is still unclear that how a political progress can be achieved in the complicated bilateral relations of the U.S. and Russia.

Beside consequences of investment and probable damages on Russia’s equipment and oil fields, continuity of production may cause marketing woes for Russian companies. Currently and in the heat of fall in demand for oil due to the Coronavirus pandemic, Russia’s crude oil export is facing the slump in demand.

Statistical reports show that Russia currently has some 200,000 active oil well which are more than in any crude oil producing countries. In comparison to the low cost of oil production in Saudi Arabia, Russia’s hydrodynamic methods (like horizontal drilling and hydraulic fracturing) especially in the old wells of the country needs more workforces and investment.

The OPEC in December 2016 and after two years of experiencing the nose-diving oil price in the global oil markets reached an agreement with some non-OPEC countries  on cutting the oil production. These non-OPEC countries could, beside the OPEC members, regulate the market in 2017 through reviewing the volume of production and sales in the market. The joint policy-making among 10 oil producing countries like Russia along with 13 OPEC member states, which is known as OPEC Plus, is a body which was practically, before April 6, 2012, a coalition led by Moscow and Riyadh in controlling the oil production and distribution in the market. Of course violation of the OPEC Plus agreement by some countries was totally evident which created fluctuation in the oil market and Russia sells also two-thirds of its crude oil exports to only two markets of Europe and Northeast Asia which is mainly transshipped via pipeline.

In China’s market, since the outbreak of the COVID-19, Russia has filled Iran and Venezuela’s gap in the oil market and it has boosted its share of the oil market. Before the agreement on cutting the production in the OPEC Plus, Russian companies were actively after developing the green fields (new fields) in the remote coastal areas like Siberia and Far East of Russia in order to compensate the production slump in other regions of Russia.

However, regarding the current oil price, aura of ambiguity has gripped the continuation of investment and production in the green fields. So far, Russian oil companies have not stopped their macro investments and they are optimistic over the return of the global oil price and the agreement of OPEC Plus members on cutting the production. That the condition in the global oil market today is moving towards lack demand and purchaser, so-called the market, is also somewhat really a motivation for a strategic police-making for Iran.

If Majlis and officials do strive to take a bold stand and announce that Iran has stopped crude oil sale, the country can convert its oil production into oil products in a decade whose natural values are several times more than crude oil sales. The interaction among world powers together on the oil has always had disturbances for OPEC and OPEC Plus and I wish we had not acceded to such disturbances.

 By: Hamid Reza Naghashian