Our Analytics 11 december — 08:38

Oil game: Cat gives hope to doomed mouse (Our comment)



The uncontrolled volatility of oil quotations, when due to oversupply on the world market the prices for raw materials rose sharply or declined, came to an end, albeit temporary one. The members of OPEC+, finally, reached an agreement on reducing the total volume of production. Although difficult negotiations during the meeting of the ministerial monitoring committee lasted several hours, an agreement to reduce oil production in 2019 was still reached. The overall decline in oil production will be 1.2 million barrels per day, and the agreement will last six months. Moreover, the reduction in oil production for OPEC will be 2.8%, for all countries outside OPEC - 2% from the level of October 2018.

So, the relative stability in the oil market, it can be said, has been achieved. But how strong and long can it be considered? After all, all the troubles that we observed on the eve of the meeting are still fresh in memory. After jumping over the $80 bar, the price of oil for one month suddenly collapsed more than $20, dropping below $60 a barrel. Oil-producing countries again sounded the alarm, while in the United States, on the contrary, celebrated victory. One also remembers how US President Donald Trump proudly credited himself with such a victory, for the achievement of which he really invested a lot of strength.

But the situation has changed again (for the umpteenth time), prices after the last decision of OPEC+ turned upwards. Now the oil producers are triumphant, and the United States, on the contrary, is expressing discontent. In particular, Deputy Assistant Secretary of State for Energy Sandra Oudkirk said that Washington is negative about any restrictions on the free market, including the decisions of OPEC on oil. The White House for decades, starting with the energy crisis of the 1970s, was opposed to the OPEC cartel's approaches to market regulation. They say that market forces themselves must determine the level of supply, based on demand. But why in this case the US itself constantly intervenes in the course of market processes? Unfortunately, this question in Washington remains unanswered.

But Washington is Washington, and we have to reckon with it. Oil is one of the most important commodities that can have an unpredictable effect on the global economy. Therefore, the situation on the world oil market is always at the centre of attention of not only economists, but also politicians of the highest rank, who even shake the situation even more and do not allow it to stabilise. In the most difficult situation, Saudi Arabia is always the closest ally of the United States and at the same time it the country most dependent on oil prices. It is the Saudis who always initiate a reduction in production, which is equivalent to an increase in prices, but they do so with an eye on their ally.

So now, Minister of Energy, Industry and Mineral Resources Khalid bin Abdulaziz Al Faleh, forgetting about his country, said that the kingdom’s actions to regulate the oil market are of great importance to the United States. They say that the more oil and gas production grows in the United States, the more important for them is the fact that Saudi Arabia continues to regulate the market. And now, when oil exports from the United States for the first time exceeded imports, one would assume 'that Washington no longer needs Saudi Arabia.'

Khalid bin Abdulaziz Al Faleh

But today it is important for the United States to have a partner who can stabilise the market, since 'stakes have risen.' According to him, American manufacturers 'certainly feel relieved' because the actions of the Saudis allow them to confidently predict the situation in 2019. 'President Trump announced his energy policy: he wants oil and gas production in the US to grow. We have nothing against it, we want to facilitate the process. I hope that we can grow together, not at the expense of each other,' the minister concluded.

So go and figure out who the main player of the world oil roulette serves. On the one hand, the country protects its interests. On the other hand, it does not 'forget allied obligations' to the United States. True, the latter has not yet been understood by the ally itself, as mentioned above. And in spite of this, the same minister has already stated that Saudi Arabia is not going to reduce its oil production for too long to prevent a significant increase in shale oil production. They say that reducing production for too long a period can lead to a significant increase in shale oil production. It turns out some kind of cat-and-mouse game, when the cat lets go of the captured mouse, but as soon as it goes beyond the permitted limits, it immediately rakes it back with its paw. Although it becomes quite obvious: Saudi Arabia could not have done so without coordination with Washington.

In any case, the current decision of OPEC to reduce oil production will make a certain contribution to the stabilisation of prices in the market, at least keep them from falling, which has taken place in recent months. But the contradictions between the countries of OPEC+, for whom at the current stage it is beneficial to restrain production, and the United States, which sharply increase production, have not gone anywhere.

While OPEC + reduces its production, America, as it increased its production, will continue to increase it. That is, those barrels that OPEC+ participants remove from the market are being replaced by American shale oil. But already more expensive. And if earlier, when Americans imported oil, low quotes were profitable for them, then today, when the United States turned into a net exporter of crude oil, it is definitely difficult to say.

True, Trump insists on low oil prices, which facilitates the growth of the economy as a whole. But what about oilmen who benefit only from high prices, especially for shale oil? Is it because of this that the prices rise sharply, then fall even more abruptly? And then the thought arises, is the United States playing here the role of the cat itself, which initially gives hope to the mouse, but immediately makes it clear who is the master of the situation, in which the mouse was doomed from the beginning.

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