What to expect from OPEC and OPEC+ meetings

OPEC and OPEC+ countries will hold meetings on November 30 regarding agreements to reduce oil production . Experts interviewed by RBC believe that the risk of negotiations failing is minimal, as this could cause prices to fall. OPEC headquarters in Vienna, Austria

Ten OPEC countries and OPEC+ members (which are not members of OPEC) will hold meetings on November 30: a meeting of the Joint Ministerial Monitoring Committee (JMMC) and a meeting of ministers of OPEC and non-OPEC countries will take place.

The OPEC meeting was supposed to take place on November 25-26, but it was postponed - this immediately provoked another fall in Brent by 2.45%, to $80.43 per barrel by 19:05 Moscow time on November 27. However, its price has not yet reached $77.42 per barrel (November 16 - the minimum value since the beginning of July).

Which states are part of oil cartels?

The Organization of Petroleum Exporting Countries (OPEC) has existed since 1960. It now includes 13 countries: Saudi Arabia , Iran, Iraq, Kuwait, UAE, Algeria, Libya, Nigeria, Angola, Gabon, Equatorial Guinea, Congo and Venezuela . The composition of the oil cartel has changed several times. For example, Qatar left OPEC in December 2018, as the country decided to focus on gas production.

Countries that are not members of OPEC, amid falling prices foroil in the mid-2010s merged with the oil cartel into the new OPEC+ alliance. Currently, OPEC+ (not counting OPEC itself) includes ten countries: RUSSIA , Kazakhstan , Azerbaijan , Bahrain, Oman, Brunei, Malaysia, Mexico, Sudan and South Sudan. Iran, Libya and Venezuela do not participate in the current OPEC+ agreements to reduce oil production.

Estimates of the share of OPEC countries in world oil production differ greatly. For example, the British energy company BP estimated at the beginning of 2023 that the cartel’s production in 2022 amounted to 45% of the global total. The US Energy Information Administration (EIA) believes that it was 28.7 million barrels. per day (b/d), or 38%, and the OPEC+ production volume of 48 million b/d corresponds to 59%.

Agenda of OPEC and OPEC+ meetings

There may be two key topics for discussion at the next OPEC+ summit - these are the volumes of upcoming oil production from the alliance countries and the internal production discipline of individual countries, since it was precisely because of the last point that the OPEC+ summit was unexpectedly postponed for several days, noted Alexander Potavin, analyst FG "Finam". Most likely, at the next meeting the issue of reaching agreements with African producers will be considered (it was previously reported that Angola and Nigeria are seeking to increase production), suggested Daniil Bolotskikh, leading analyst at Digital Broker.

The first OPEC+ deal to reduce oil production was concluded in December 2016: the countries agreed to reduce it by 1.7 million bpd by October 2016. The agreement was extended several times, but at the beginning of 2020 the countries were unable to reach an agreement. This , coupled with a sharp drop in demand amid covid-19 , has led to a sharp decline in oil prices.

The OPEC+ countries concluded a new deal in April 2020: it provided for a sharp reduction in oil production by 9.7 million bpd in May-June, then it was supposed to gradually increase to the April level, which the OPEC+ countries reached in September 2022. In October 2022, OPEC countries and Russia agreed to reduce the oil production quota by 2 million bpd to the August 2022 level. It was assumed that the quotas would be in effect until the end of 2023. The total production quota of the alliance countries then amounted to 41.86 million b/d, which approximately corresponded to the level of April 2022 (41.7 million b/d). Then the HEAD of the Ministry of Energy of Saudi Arabia, Prince Abdulaziz bin Salman, noted that the actual reduction in oil production would be only 1–1.1 million bpd.

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In April 2023, some OPEC+ countries, including Russia and Saudi Arabia, announced additional cuts from May to the end of 2023. The volume of additionally reduced production amounted to approximately 1.65–1.66 million bpd. At the beginning of 2023, Russia decided to voluntarily reduce production by 500 thousand b/d (about 5% of the February level), to approximately 9.5 million b/d from March 1 against the backdrop of the EU countries imposing an embargo on the import of Russian oil in December 2022 and the creation by Western countries of a price ceiling for third countries for oil at $60 per barrel in the same month and petroleum products in February.

In June, at a meeting of OPEC+ ministers, it was decided to reduce the level of quotas for 2024 by another 1.4 million bpd, to 40.46 million bpd. Following the same meeting, bin Salman announced an additional voluntary reduction in Saudi Arabia's production by 1 million b/d, that is, from approximately 10 million b/d in June to 9 million b/d. In August, Russia also further reduced crude oil exports by 500 thousand bpd, but from September the reduction was reduced to 300 thousand bpd, which, according to Deputy Prime Minister Alexander Novak, remains relevant until the end of 2023. The Saudi SPA agency reported in September that Riyadh would also extend its voluntary reduction in oil production by 1 million bpd until the end of this year.

What decisions can be made

Photo: John Moore/Getty Images

The risk that OPEC+ countries will not be able to agree on a reduction in oil production remains minimal, since the current agreements are beneficial to the main oil producers, suggested Nariman Taiketaev, DIRECTOR of the corporate ratings group of the NKR agency. At the current price level, the budget of Saudi Arabia (the leader in production) remains in deficit. If the agreements fail,  oil prices are highly likely to decline relative to current levels, which will further aggravate the situation with the budget deficit, the analyst said.

There is always a chance that an agreement will not be reached, but usually OPEC and OPEC+ countries find a compromise, noted Ilya Zharsky, managing partner of the Veta Expert Group. The risks that a final agreement will not be reached are minimal, since this would mean the collapse of the oil alliance and a fall in oil prices, says Alexander Potavin. The most likely result of the next OPEC+ summit, according to the expert, will be an extension of existing production cuts, and new supply reductions, if possible, will be on a voluntary basis.

Bolotskikh noted that an agreement to reduce production by the end of the year has already been reached. There is a risk that one of the countries will refuse to comply with the agreement, but this scenario seems least likely. If countries cancel the reduction by 1.3 million b/d (Russia + Saudi Arabia), then prices could return to $70 per barrel, the analyst predicts, and OPEC+ countries will not cut production further, given that the IEA has already revised its forecast for increase in supply by non-OPEC+ countries to 1.6 million bpd.

If the reduction in oil production in OPEC+ countries continues, the partially lost volumes may be compensated by an increase in production in countries such as the usa , CANADA and Brazil , Taiketaev noted. In a situation where oil production continues to grow in countries that are not members of OPEC or OPEC+, including Brazil, the USA, Norway and Guyana, Potavin noted, traditional producers from the Middle East will lose their market shares. In the next two to three years, non-OPEC+ countries may increase oil production, including the United States with growth potential given its shale deposits, Zharsky suggested. The level of unfinished wells in the US is at a fairly low level, the number of drilling rigs has been declining since the beginning of the year, so the risk of increasing production in the country remains low, Bolotskikh noted.

The release of US strategic oil reserves may temporarily increase supply on the market and lower prices, but this will not be a long-term solution to satisfy demand, Zharsky believes. Oil reserves in the United States are at a multi-year minimum - by mid-November they amounted to about 351 million barrels, Taiketaev noted, that is, their release is unlikely. According to Potavin's calculations, the country's oil reserves are approximately sufficient to cover oil consumption in the United States itself for only 28 days.