12:59 GMT13 July 2020
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    Russia and the fifteen members of the Organization of Petroleum Exporting Countries (OPEC) have agreed to increase global oil production by one million barrels a day, with Russia's share to amount to about one-fifth of the total. Energy market experts speaking to Sputnik outlined what the move will mean for Russia, the US, and the global economy.

    The OPEC+ agreement to increase output, made over the weekend, follows the late 2016 decision by producers to cut the global oil supply by 1.8 million barrels per day, with Russia accounting for 300,000 barrels. Since then, it has become increasingly evident that the market lacks oil amid downturns in production in Venezuela and Angola, and the threat of looming US sanctions affecting Iranian oil exports.

    The move also comes amid repeated warnings by energy experts, who calculated that if OPEC+ does not bring production back up, the oil shortage could drive prices up past the $100 a barrel mark by 2019. UBS had warned in May that at $100 a barrel, economic growth would stagnate and drive the global economy into a recession, leading to economic losses of at least $100 billion.

    "The decision by OPEC+ to increase production is designed to compensate for an excessive deficit and to prevent uncontrollable price increases," senior Discovery Broker analyst Andrei Kochetkov said, speaking to Sputnik.

    And that's not to mention growing US production, which RIA Novosti contributor Natalya Dembinskaya pointed out would only benefit from $100 a barrel oil.

    "High prices stimulate the production of shale oil in the United States. Since the beginning of the year, US companies have increased production by more than a million barrels a day, and this trend is intensifying. According to Department of Energy estimates, the US is producing a record 7.18 million barrels per day in the month of June."

    Accordingly, Dembinskaya noted, the OPEC+ deal should cool the heels of shale producers, which require higher prices than traditional producers to make a profit.

    Commenting on the Russia/OPEC decision, Alpari Broker deputy director Natalia Milchakova noted that "in the worst case scenario, prices will drop to $70 a barrel, which is an equilibrium that suits both exporters and importers around the world."

    Furthermore, because Russia and Saudi Arabia are the largest producers and the main drivers of growing output, they are also expected to become the main beneficiaries. Russia is set to recover two-thirds of its lost production volumes, meaning more cash for its budget and expected positive knock-on effects for its sluggish economy, which grew by only 1.3 percent in the first quarter of 2018.

    In the meantime, Russia has been invited to become an observer to OPEC. Although this may not have any direct economic benefits, it will provide the country with new opportunities to suggest new initiatives to regulate the global oil market in the future, Milchakova concluded.


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