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The OPEC + Ministerial Monitoring Committee, which includes representatives of Saudi Arabia and Russia, on Sunday July 18, recommended increasing oil production by 400 thousand barrels per day per month, starting in August. In August-December 2021, production will increase by 2 million barrels, and by September 2022 the restriction on production of 5.8 million barrels, which is currently in force, will be completely removed. The agreement itself has been extended from May 1, 2022 to December 31, 2022, it says in the OPEC + message.
From December 2021, restrictions on oil production in countries supporting the agreement will amount to 3.8 million barrels per day from the level of October 2018. Russia and Saudi Arabia will be able to increase production by 0.5 million barrels per day each in five months – up to 10 million barrels per day. At the same time, the oil price will drop to $ 60-70 per barrel, said RBC senior director of the group for natural resources and commodities of the international rating agency Fitch Dmitry Marinchenko. According to him, this level will generally suit both the OPEC + countries and the majority of oil and gas companies, including shale producers from the United States. On July 18, the price of Brent crude was traded at $ 73.8 per barrel.
The agreement on a record production cut of 9.7 million barrels per day, which was concluded by the OPEC countries, Russia and other oil producers outside the cartel after the collapse of oil prices, came into effect on May 1, 2020. It was calculated for two years (until early May 2022) and provides for a gradual increase in production.
The parties to the agreement tried to come to an agreement at the beginning of the month. However, the negotiations, which lasted several days, ended in vain on July 5. Then, an obstacle to reaching a common compromise was the position of the United Arab Emirates, which wanted to increase the reporting bar for reducing its production – from 3.168 million barrels to 3.8 million barrels per day. As a result, the parties agreed on a compromise option – an increase by about 330 thousand barrels, up to 3.5 million barrels per day (this cut-off level will be in effect from May 2022).
For Russia and Saudi Arabia, the base production level will also be increased from May 2022 – by 0.5 million barrels, to 11.5 million barrels per day. The base production levels for Kuwait and Iraq are also increasing – by 150 thousand barrels per day. Now Kuwait has a base level of 2.8 million barrels per day, Iraq – 4.653 million barrels per day.
According to the agreements announced on Sunday, Russia will be able to reach pre-crisis production levels in May 2022, increasing production by 100,000 barrels per day every month, Deputy Prime Minister Alexander Novak said. According to him, this will make it possible to produce an additional 21 million tons of oil in 2021 and 2022. With an average price of $ 60 per barrel, additional budget revenues will amount to more than 400 billion rubles.
According to Alexander Novak, the market is witnessing an increase in demand for both oil and petroleum products, which has caused a shortage. In June, OPEC Secretary General Mohammed Barkindo said that oil demand in the fourth quarter of 2021 will reach 99 million barrels per day, which “will return the indicator to the pre-pandemic level.” On average, during the year, the volume of demand will be about 96.5 million barrels per day, OPEC predicted.
The next meeting of OPEC + participants is scheduled for September 1, 2021.
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