Guardianship agreement to freeze production: who plays by the rules. An agreement on limiting oil production was signed in Vienna between the custodian countries and countries not included in the cartel Treaty of the custodian countries

16:04 — REGNUM Experts differ widely on the effectiveness of the OPEC Plus deal to cut oil production. For example, the head of the analytical unit for energy commodities at Goldman Sachs Jeff Curry Today, September 8, at the Moscow Financial Forum he said that the deal was ineffective.

According to Curry, the agreement between OPEC members and independent oil-producing countries led by Russia on a concerted reduction in oil production has little impact on the market, namely the price of oil. Therefore, the Russian side can benefit if it does not reduce energy production to stabilize the market, but increases it, a Goldman Sachs representative believes.

The Deputy Prime Minister of the Russian Federation has a different point of view on this matter. Arkady Dvorkovich. Today, during his speech at the XI Kazenergy Eurasian Forum, he said that the OPEC Plus agreement has made the investment climate more predictable.

Dvorkovich emphasized that Russia became the main driver for concluding the agreement. It has made it possible to stabilize oil prices in recent months, which would have been impossible without Russia’s participation. The Deputy Prime Minister called it a success.

“The markets have become more stable. The investment climate has become more predictable, investments have increased again,”- Dvorkovich noted.

Head of Rosneft Igor Sechin, in turn, said today that the oil market is no longer affected by the OPEC plus deal, but by the devaluation of the dollar, it was reported IA REGNUM. According to Sechin, the United States is now supporting its shale producers by devaluing the dollar. Considering this factor, it is necessary to analyze all the factors that will affect the market in 2018 before discussing the issue of extending the deal. This includes analysis of budgets, investment programs of oil producers, and the level of taxes.

A rather sharp change in oil prices may occur if the Vienna agreements on limiting oil production volumes are not extended, the head of the Russian Ministry of Finance said on Thursday, September 7 Anton Siluanov in an interview with Bloomberg TV. Siluanov said that his department expects that the issue of extending the deal will be considered, and OPEC and Russia will continue to find a common language in terms of creating a unified pricing policy.

Let us recall that the OPEC Plus agreement was concluded between OPEC members at the end of 2016 and envisaged a reduction in oil production during the first half of 2017 by approximately 1.2 million barrels per day. Almost immediately, 11 other oil-producing countries, led by Russia, joined these agreements. Their share of cuts is about 600 thousand barrels per day. In May 2017, it was decided to extend the deal for another eight months - until March 2018.

Later, information appeared in the media that in July, during a meeting of the OPEC monitoring group, representatives of Russia and Saudi Arabia discussed the possibility of prolonging the deal after March 2018. Minister of Energy of the Russian Federation Alexander Novak then he stated that it was too early to talk about such an event, but this option exists. He also did not rule out that new conditions could be discussed under which it would be possible to extend the agreement.

Today, based on the results of the previous trading day, November futures for Brent oil are worth $54.49 (+0.5%), October futures for WTI oil are $49.09 (-0.1%). As BCS Express notes, the global oil market now largely depends on hurricanes in the United States and the dynamics of the dollar on the foreign exchange market. In particular, due to Hurricane Irma, oil refining was again under threat. In the Caribbean, about 250 thousand barrels per day of refining capacity were closed.

Vienna (Austria), December 10. - An agreement was signed to limit oil production between OPEC countries and 11 countries that are not members of the cartel. From countries outside OPEC, ministers from Russia, Mexico, Azerbaijan, Brunei Darussalam, Equatorial Guinea, Bahrain, Malaysia, Oman, Sudan, and South Sudan took part in the negotiations. From OPEC, ministers from Saudi Arabia, Iran, Iraq, Qatar, Nigeria, Algeria, Ecuador, Libya, Gabon and Venezuela took part in the meeting. Co-chairman of the meeting, Minister of Energy of the Russian Federation Alexander Novak, speaking at the final press conference, said that the global reduction in oil production by OPEC countries and those not included in the cartel will reach 1.7-1.8 million barrels per day. At the same time, according to the signed agreement, countries that are not members of OPEC take responsibility for reducing oil production by about 560 thousand barrels per day.

“The reduction in oil production in Russia under the agreement will amount to approximately 200 thousand barrels per day in the first quarter of 2017,” Alexander Novak announced the details of the agreement. According to him, non-OPEC countries will reduce production from the level of October 2016. According to the minister, the agreements on oil allow us to say that cooperation between OPEC and countries outside the cartel has reached a new level and will be long-term.

The minister noted that to monitor compliance with the terms of the agreement, a monitoring group consisting of representatives of oil companies will be created within Russia. “The first meeting with them will be held next week,” the Minister added, noting that participation in the agreement for oil producing companies will be entirely voluntary.

Plans were also announced to monitor compliance with the terms of the agreement at the level of all countries that signed the document. “In order to monitor the situation regarding the implementation of the agreement, a group of five countries will be created: three countries that are members of OPEC, and two that are not members of OPEC, including Russia,” said Alexander Novak.

The minister noted that the agreement could be extended into the second half of 2017. A decision on this will be made after the first results of the implementation of the signed document appear.

“We need to restore the situation in the markets to ensure a balance between supply and demand,” the Minister said, adding that other countries could also join the agreement to reduce oil production. “It is important to consider that this is not a closed agreement; other countries can join it. The doors are open, and we will continue to work together to stabilize the market,” concluded Alexander Novak.

OPEC countries and independent oil producers are conducting active negotiations on the possibility of extending the agreement on limiting production.

OPEC countries and independent oil producers are conducting active negotiations on the possibility of extending the agreement on limiting production. But how effective was this pact for its participants and, first of all, for Russia? The search for an answer to this question became the leitmotif of the study “Russian Oil Industry: Results of 2016 and Prospects for 2017-2018” conducted by VYGON Consulting. The presentation of its first part took place on May 17 at the Interfax press center.

Short term effect

As Grigory Vygon, managing director of VYGON Consulting, noted, the agreement between OPEC and producing countries outside the cartel had a strong impact on all market players, including the Russian oil industry and individual companies, as well as the Russian budget.

According to G. Vygon, our country’s participation in this agreement was the right decision. In fact, by doing so, Russia saved OPEC, whose members could not agree among themselves for a long time.

However, the situation on the world oil market began to improve even before the said agreement came into force. Thus, the surplus of raw materials decreased from 1.69 million barrels per day. in 2015 to 0.53 million barrels per day. in 2016.

On the one hand, production in the 4 largest producing countries - Iran, Iraq, Saudi Arabia and Russia - collectively increased by 1.66 million barrels per day. But, on the other hand, there was a record increase in consumption (by 1.51 million barrels per day). In addition, there was a decline in liquid hydrocarbon production in the United States and other producers (by 1.3 million barrels per day).

The United States surprised everyone. Production there in 2016 fell to a much lesser extent than expected (by 300 thousand barrels per day). And starting this year, it has resumed growth. It is expected to be about 600 thousand barrels per day. this year and more than 1 million barrels per day. in the next one. Such successes are due to the fact that American companies were able to optimize production processes and increase the efficiency of drilling and hydraulic fracturing operations. As a result, the threshold level at which production becomes profitable has decreased on average from $55-60 to $40-45 per barrel. According to G. Vygon, America will continue to serve as a kind of counterweight to OPEC and play a balancing role in the oil market.

How did the market react to the signing of the OPEC+ pact? By the end of 2016, Brent prices reached $55/barrel. Although the annual average was only $44/bbl. compared to $52 in 2015.

According to VYGON Consulting calculations, if an agreement had not been reached (“No Agreement” scenario), the price in 2017 would have been at $43/bbl. (despite the fact that the surplus would have been reduced to 0.15 million barrels per day). However, in 2018, due to strong growth in consumption, there would be an oil shortage of about 0.53 million barrels per day, which would lead to an increase in prices to $45 per barrel.

But is it worth extending this agreement? Will its effect last? According to company experts, if the extension is refused (the “6-month agreement” scenario), average prices in 2016 will be $48-50/bbl. And the shortage of raw materials in 2017 will be at the level of 0.66 million barrels per day. However, the increase in production by OPEC countries and other participants in the agreement, starting in the second half of the year, will cover the growth in consumption. As a result, next year the deficit will decrease to 0.36 million barrels per day.

Therefore, a more preferable option is to extend the agreement for another six months (the “12 month agreement” scenario). In this case, already in 2017 there is a deficit of 1.35 million barrels per day. Thanks to this, prices will rise to $55/barrel. this year and up to $57 next year.

But it is curious that already in 2018 the picture will change. The “12 Month Agreement” scenario provides for the smallest global market deficit – only 0.3 million barrels per day. versus 0.36 million barrels per day. in the “6 month agreement” scenario and 0.53 million barrels per day. in the “No Agreement” scenario.

In other words, the extension of the OPEC+ pact will no longer lead to such significant results. “Manually managing supply to balance the market after the shale revolution may only have a short-term effect. The more oil production in the signatory countries declines, the faster prices and production in the United States rise. This leads to the elimination of the deficit and a reduction in the market share of OPEC and its affiliated producers. The question is whether the market will be balanced with oil prices above $50/barrel. in the medium term, remains open,” VYGON Consulting experts note.

Benefits are the engine of production

An equally important question is how can the OPEC+ agreement affect the Russian oil and gas industry? The production of liquid hydrocarbons in our country in 2016 reached another record of 547.5 million tons (2.5% higher than the previous year). Production grew at a particularly rapid pace in August-October 2016. This became a kind of preparation for an agreement with OPEC.

At the same time, the main contribution to its increase was made by a new wave of so-called greenfields (+17.5 million tons). It stopped the decline in production at mature fields. It is noteworthy that greenfields ensured growth not only in new regions (in Eastern Siberia), but also in old ones (in Western Siberia), and only in the Ural-Volga region growth was achieved mainly due to old fields.

Most growing greenfields enjoy mineral extraction tax and export duty benefits. In general, the preferential process has been gaining momentum since 2006, when the first preferences for depleted deposits were introduced.

The preferential production volume last year reached 197.9 million tons, or 39.5% of total oil production in Russia (excluding PSA). In monetary terms, the amount of state support for oil production exceeded 400 billion rubles. The main category of “beneficiaries” are depleted deposits and greenfields.

But the distribution of benefits between oil-bearing regions is uneven. According to calculations by VYGON Consulting, Khanty-Mansi Autonomous Okrug is deprived in this regard compared to Eastern Siberia and the Ural-Volga region. Thus, at a net price (oil price on a delivery basis minus transport costs, effective values ​​of the export duty and mineral extraction tax, taking into account benefits), the Ural-Volga region is ahead of the Khanty-Mansi Autonomous Okrug by about $4/barrel.

The gap in specific CAPEX is even greater, since the conditions for the extraction and transportation of raw materials in the Ural-Volga region are more favorable than in Western Siberia (smaller well depth, shorter transport distance, etc.).

The leaders in terms of benefits are the regions of Eastern Siberia and the Far East, which have the opportunity to sell oil to Asia at a premium, and also have favorable conditions for taxes and transport costs.

However, the level of tax burden remains very high in all mining regions. At a price of $50/bbl. oil companies average net revenues of about $15.5/bbl. From this amount it is necessary not only to cover operating costs, but also to take funds for capital investments.

Consequences for Russia

Russia strictly implements agreements with OPEC to reduce production volumes, even slightly ahead of schedule. This decrease was mainly due to non-preferential brownfields located in Western Siberia. At the same time, it is possible to make do with “little loss” - not to decommission fields, but to limit production by optimizing the well stock.

As for greenfields, 24 new projects have a production growth potential of 15.8 million tons in 2017 and 13.2 million tons in 2018. According to VYGON Consulting experts, the extension of the agreement with OPEC is unlikely to affect these plans, since companies are least interested in losing preferential volumes.

Compliance with the OPEC+ pact has not yet led to a reduction in production drilling in Russia; its scale is growing. But the key question is: what happens next? The “6 Month Agreement” scenario assumes a slowdown in the growth rate of new production drilling in Russia to 3-5% in 2017 and 10% in 2018.

If this scenario is realized and the agreement is not extended, then production could increase to 554 million tons this year and up to 567 million tons next year. This is 4 million tons below the estimated potential that could have been achieved in the absence of the mentioned pact.

If the agreement is extended (the “12 month” scenario), then the “optimization effect” alone will no longer be enough to keep production at the level of 546.5 million tons (which corresponds to 10.9 million barrels per day). As a result, brownfields will suffer significantly.

“Forgone” production in 2017 will be 11.8 million tons compared to the “No Agreement” scenario. And the total production of liquid hydrocarbons will decrease to 546.4 million tons.

At the same time, the pace of drilling and commissioning of new wells this year will be reduced by more than 7-8% compared to 2016, which will have a painful impact on production levels in 2018. The effect could be about 15 million tons compared to the theoretical “No Agreement” scenario (although production will increase to 556.7 million tons). “That is, instead of positive production dynamics, we will get slight stagnation,” summarizes G. Vygon.

Winners and Losers

However, the main interest is not the production volumes, but its economic effects for the industry and the state as a whole.

As noted in the VYGON Consulting study, due to the fall in prices for hydrocarbon raw materials, the share of the oil and gas industry in consolidated budget revenues decreased significantly (from 32.6% in 2014 to 22.4% in 2016). Moreover, about 77% comes from oil, the rest from gas and condensate.

It is no secret that the lion's share of additional income as a result of rising oil prices goes to the state. But even from their reduction, the budget suffers more than the industry. Thus, in 2016, when the price of Urals fell to $41.7 per barrel, budget oil revenues decreased by 0.6 trillion rubles, while the EVITDA of oil companies remained unchanged.

According to calculations by VYGON Consulting, the agreement with OPEC is beneficial to the state, since additional revenues from rising oil prices significantly exceed budget losses from production cuts. True, the policy of the Central Bank leads to the fact that as a result of the strengthening of the ruble, the effect on the budget will be neutralized to some extent. But the state treasury will still receive a significant increase - from 0.75 to 1.5 trillion rubles in 2017-2018.

For oil companies, the situation is the opposite - their financial performance deteriorates as a result of the transaction. They will lose from 40 to 220 billion rubles, depending on the scenario.

Theoretically, if there were no production cuts, the effect for companies from increasing oil prices would be practically zero. As much as they gain from rising prices, they lose as much as a result of changes in the ruble exchange rate and tax withdrawals. And due to the fact that production has decreased, they are suffering real financial losses.

Reason for bargaining

But every cloud has a silver lining. As G. Vygon believes, it is better for the state to receive additional funds from rising oil prices than from increasing tax pressure on the oil and gas industry. Moreover, oil workers can use the fall in their income as a reason to appeal to the government to propose fiscal changes. For example, they may ask not to increase the mineral extraction tax (as required by the Ministry of Finance)

or expand the scope of the experiment to introduce an additional income tax. They say that since the industry lost about 1 trillion rubles, it has the right to receive something in return.

So, the reduction in production had a fairly strong positive effect on the budget. And companies got a chance to bargain for some preferences. But, as G. Vygon once again emphasizes, such solutions only work over a short horizon. Because then the market starts to react anyway.

If the price of oil rises too much, the United States will increase shale oil production at a faster pace, and demand will grow more slowly. And as a result, the deficit will quickly disappear anyway. At the same time, a reduction in the scale of drilling will lead to a drop in production in subsequent years, which will have very painful consequences for the industry.

TASS DOSSIER. On November 29, a meeting of the Joint Monitoring Committee of OPEC+ countries will be held in Vienna (Austria), dedicated to the implementation of the agreement to reduce oil production, concluded on November 30, 2016 in the Austrian capital. The meeting of the ministers of oil and energy of the states participating in the agreement will begin on November 30, at which a decision may be made on its extension. The editors of TASS-DOSSIER have prepared material on the history of negotiations on stabilizing prices on the oil market since 2014.

The fall in world prices and the reaction of the largest oil producers

The need to develop coordinated actions between the largest oil producers - Russia (in 2015, daily production level was 10.7 million barrels per day, 11% of world production) and members of the Organization of the Petroleum Exporting Countries (OPEC; 32.5 million barrels per day in 2015, 33.8%) - arose with the beginning of the fall in world energy prices.

If in mid-2014 Brent oil cost more than $100 per barrel, then by October it had fallen in price by 15%. This forced two members of the cartel - Venezuela and Kuwait - to come up with proposals in November 2014 to reduce oil production in order to create conditions for a renewed rise in prices. A similar idea was voiced in the same month by the head of the Russian Ministry of Energy, Alexander Novak. He proposed that OPEC mutually reduce production to stabilize prices.

Despite these proposals, OPEC, at its meeting in Vienna on November 27, 2014, refused to reduce production levels (since 2011, the total daily production limit of the cartel countries has been 30 million barrels per day). This led to a further drop in oil prices, first to $75 per barrel, and in January 2015 to $45.

In 2015, the average annual price of Brent was $52.53. At the same time, the largest oil producers did not take any concerted actions to reduce production.

At a meeting on December 4, 2015, OPEC did not disclose the target production level, essentially allowing cartel member countries to produce any amount of oil. This led to a new round of decline in oil prices. In January 2016, a barrel of Brent oil cost less than $30 for the first time since 2002. The increase in supply on the market was due to the start of oil supplies from Iran, from which international sanctions were lifted in January 2016.

Preparing for an agreement on production cuts

On February 16, 2016, Russia and three OPEC countries - Qatar, Saudi Arabia and Venezuela - began an informal discussion at the ministerial level about a possible freeze in production levels. At the same time, US Secretary of Economy Ernest Moniz announced on February 25 that the United States (the largest oil producer - 14 million barrels per day in 2015, 14.6% of world production) will not join a possible freeze agreement, since it does not have legal instruments for regulation of production volumes of its oil industry.

In April 2016, in the capital of Qatar, Doha, negotiations were held between oil-producing countries - representatives of OPEC states, as well as Russia, Kazakhstan, Azerbaijan, Bahrain, Oman, Colombia and Mexico. Their topic was a temporary agreement to maintain production at a level not exceeding that of January 1, 2016. On April 17, it was announced that the negotiations had ended without results. One of the reasons for the failure of the agreement was Iran’s reluctance to freeze production volumes (in 2016 the country increased production by 15.9% compared to 2015 - to 3.7 million barrels per day), which, in turn, was the main requirement of Saudi Arabia .

On August 15, 2016, the head of the Russian Ministry of Energy, Alexander Novak, confirmed that Russia is ready to continue negotiations with OPEC on stabilizing oil prices. At the same time, Venezuelan President Nicolas Maduro announced consultations between oil-producing countries on this issue.

Despite the declared desire to limit the supply of oil on the world market, in August 2016 OPEC increased production to a record 33.69 million barrels per day. At the same time, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khaled bin Abdulaziz al-Faleh, argued that he does not believe there is a need for "significant intervention" in the oil market, since "the market is moving in the right direction" and "demand is growing well around the world ".

On September 5, 2016, in Hangzhou (China), during the G20 summit, Russian Energy Minister Alexander Novak and Saudi Arabian Minister of Energy, Industry and Mineral Resources Khaled bin Abdulaziz al-Faleh signed a joint statement on actions to maintain stability in the oil market. The ministers also agreed to create a joint monitoring working group that will monitor the dynamics of the oil market and develop recommendations for joint actions to ensure its sustainability.

On October 10, 2016, Russian President Vladimir Putin said that Russia is ready to join the agreement to freeze oil production levels.

Vienna Agreement

On November 30, 2016, at a regular meeting in Vienna, 13 OPEC members agreed to reduce oil production by 1.2 million barrels per day, to 32.5 million. Another 11 non-OPEC countries joined the agreement: Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, Equatorial Guinea (joined OPEC in 2017) and South Sudan. In total, the countries participating in the agreement agreed to reduce production by 1.8 million barrels compared to the level of October 2016. Russia agreed to reduce average daily production by 2.7% (300 thousand barrels).

The agreement was the first international agreement since 2001 aimed at stabilizing prices on the oil market. Among the countries that do not participate in the OPEC+ agreement, but have large volumes of oil production, are the USA, Norway, China and Brazil.

On January 22, 2017, the Joint Monitoring Committee of OPEC and non-OPEC countries at the ministerial level held its first meeting. It was created to ensure the operation of the Vienna Agreement and to track information on its implementation by participants.

On May 25, 2017, OPEC+ ministers extended the agreements until the end of March 2018.

Results of the agreement

The agreement in Vienna contributed to rising oil prices and stabilized the market. Even before the start of production cuts, on November 30, 2016, the price of a barrel of Brent exceeded $50 for the first time since June 2016. On December 28, the price of a barrel reached $57, setting an annual record and returning to the level of July 2015. The average price of a barrel of Brent at the end of 2016 was $42.7.

Over the past period of 2017, the average price of a barrel of Brent was $52.5, and since August it has consolidated at a level above $50 per barrel; in October, for the first time since July 2015, it exceeded $60.

In September 2017, Russian Energy Minister Alexander Novak reported that Russia exceeded the reduction in average daily production under the OPEC+ deal by 49.5 thousand barrels per day in August and reduced oil production by 349.5 thousand barrels per day, returning to the level of October 2016.

The longer the agreement to reduce oil production lasts, the greater the contradictions between its participants and the stronger the incentives for the development of alternative energy.

Oil prices are at their highest level in three years: in January, the price of Brent reached $70 per barrel. But for oil workers, this situation does not evoke the same joyful emotions as in the mid-2000s or early 2010s. At a recent forum in Davos, LUKOIL CEO Vagit Alekperov warned that the greed of producers could lead to a mid-2000s scenario: a rapid rise in oil prices will stimulate investment in alternative energy and subsequently lead to a sharp decline in hydrocarbon prices. According to Alekperov, excess supply on the market has decreased and already in April one can think about a cautious withdrawal from the OPEC+ agreement on limiting production.

Arguments against greed

The elephant in the room, or the inconvenient truth that people try to ignore, is the long-term forecasts for oil demand. Demand is likely to peak in 2030-2040 and then begin to decline. The main reasons are increased energy efficiency, the development of energy based on renewable energy sources (RES) and the spread of electric vehicles. Therefore, rising oil prices now not only bring additional income to companies, but also brings the end of the “oil era” closer.

High oil prices are an incentive for alternative technologies. Over the past five years, the commissioning of new generating capacities based on renewable energy sources has exceeded all expectations. The development of electric vehicles has led to leading countries and automakers planning to phase out new cars with internal combustion engines in 2030-2040. Investments in alternative technologies amount to hundreds of billions of dollars per year. According to the International Energy Agency, investments in energy efficiency and renewable energy sources amounted to $548 billion in 2016, investments in renewable energy sources alone have exceeded $300 billion annually since 2011. Experts have changed their views on the future of fossil fuels: a new consensus suggests that oil demand will reach its peak in 20-30 years.

In mid-January, a publication by BP chief economist Spencer Dale and director of the Oxford Institute for Energy Studies, Bassam Fattouh, caused a great stir, in which experts tried to summarize current trends.

It is still impossible to predict the exact date for the peak in oil demand, Dale and Fattouh believe. Traditional energy still has a lot of room for resistance. Convenience and low cost of using conventional technologies will hinder the transition to green energy. There are three key factors that will determine the duration of the “oil era.”

1. Efficiency of technology

By increasing the efficiency of internal combustion engines, automakers increased from 8 to 4 liters per 100 km. This will curb growth in oil demand, but will also slow the transition to electric vehicles. Efficiency gains continue in oil production, particularly in the US shale industry. Shale producers will focus not on OPEC and Russia, but on competition from “green” technologies.

2. Increasing competition in the oil market.

The risk of leaving profitable resources in the ground will encourage leading producers not to limit supplies, but to increase production volumes, pushing high-cost players out of the market. The sooner producers switch to the new strategy of “more production, lower prices,” the longer the “oil age” may last.

3. Diversification of oil economies.

Governments of oil-dependent countries finance most social obligations from commodity revenues. Therefore, high dependence on oil will hinder the transition of these countries to a “more production, lower price” strategy. Now we see this in the example of the OPEC+ agreement. But the sooner exporting countries can reduce their dependence on oil and change their strategy, the longer the “oil era” will last and the longer such countries will be able to receive income from exports.

So the criticism of the head of LUKOIL towards OPEC+ corresponds to the long-term interests of oil producers.

The fate of the deal

However, a possible request to withdraw from OPEC+ from Russian companies (it was previously reported that Gazprom Neft opposed the extension of the agreement) is unlikely to be related to the prospect of 20-30 years, but rather to pressing problems. There is a possibility that restrictions under the OPEC+ agreement will be extended for a third year - until the end of 2019, and such a decision carries many risks.

The fact is that the current price level is explained not only by fundamental factors (the OPEC+ agreement and a decrease in commercial reserves), but also by market factors. The latter include political tension in the Middle East, oil pipeline accidents and, most importantly, an unprecedented increase in demand for oil futures from hedge funds. In total, across six major futures contracts for oil and petroleum products, hedge funds increased their long positions in January to a record 1.6 million barrels. per day, which is 80% more than in June 2017. There was no such surge in activity even in 2007-2008.

Under these conditions, shale production in the United States may present an unpleasant surprise. Markets continue to be driven by data on shale drilling activity, but the driver for production growth is now not drilling volumes, but well completion capabilities. Due to a lack of capacity and consumables for hydraulic fracturing, in 2017, shale companies were unable to bring their drilling volumes to production and put 2 thousand drilled but not completed wells (DUC wells) into reserve. This amounted to 15% of all drilled wells.

As a result, there is a possible scenario in which shale industry activity causes a decline in oil prices in the second half of 2018 and puts pressure on OPEC+ to extend the agreement for another year. Extending restrictions for only six months will be unconvincing, since the seasonal peak in production and demand occurs in the second half of the year.

But the longer the OPEC+ deal lasts, the fewer benefits and the more contradictions between the producers included in the agreement. On the one hand, there is a growing risk of being left out of business: losing market share and returning to prices at $50 per barrel. On the other hand, the benefits from the deal are distributed unevenly among OPEC+ participants, and this heterogeneity is growing over time. The worst situation will be for companies that invested heavily but did not manage to bring production to the market before the conclusion of the contract at the end of 2016.

A year later, when extending the deal, OPEC+ participants agreed on an interim meeting in mid-2018. And this may be the right time to announce a gradual easing of production restrictions. But the main actors of the agreement - the authorities of Russia and Saudi Arabia - seem to be satisfied with the effectiveness of the agreement and do not allow even a hint of the need for a gradual withdrawal from it. This means that the OPEC+ agreement can be on par with the US Federal Reserve’s quantitative easing program and other temporary stimulus measures, which are easy to introduce, but then difficult to reverse, since first the regulator controls the market, but then the market controls the regulator.

Victor Kurilov senior expert at the Institute of Energy and Finance