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Moscow miscalculated, leaving the deal with OPEC

Москва просчиталась, выходя из сделки с ОПЕК

The war in the oil shale companies will be turned out, the Saudis, too, but Russia has sharply reduced the cost-effective reserves of raw materials, according to analyst Mikhail Krutikhin.

The sharp depreciation of the ruble against the dollar and the Euro to crisis levels in 2015-2016 directly associated with the crash in oil prices that occurred after Russia and the Organization of countries-exporters of oil (OPEC) agreed to cut its production. In the course of negotiations representatives of the Russian Federation refused the offer of the Saudis to significantly reduce oil production in the new deal OPEC+.

After the failure of this attempt to stabilize prices, energy Minister of Saudi Arabia Abdulaziz bin Salman said that the Kingdom will increase production of raw materials. Russian energy Minister Alexander Novak in absentia immediately replied that Russia will increase oil production. Then in world markets and there was a collapse.

Meanwhile, The Wall Street Journal made the original version of these events, according to which the reason of falling of cost of oil on world markets called “conspiracy” against Russia, organized by the Saudi authorities. And this despite the fact that after a recent meeting with Saudi Arabia’s king Salman al-Saud Alexander Novak said that “between Russia and Saudi Arabia enjoy friendly relations, meeting the long-term interests.”

About who and what purpose it actually collapses the price of oil, a columnist of “Rosbalt” talked with the analyst of the oil market, partner of the Rusenergy consulting Agency Mikhail Krutihin.

— What do you think of the version of the fall in oil prices in the “black Monday,” announced The Wall Street Journal, which boils down to the fact that all this is the machinations of Saudi Arabia, in order to annoy Russia? The Saudis, on the contrary urged Russia to sharply cut oil production to raise the price on it?

— I think it was, of course, not so. Some of the “sources” sold it all “economy” The Wall Street Journal, and the newspaper decided to use one of the versions of the incident.

— And really?

— The fall of coronavirus was inevitable. All this went on. Salvation was, the Saudis offered to go to a real decline in oil production. Russia said that we say, reduce production, and in fact it was a lie, Russia is not reduced. When Russia said that in fact leave (previous) transaction to reduce production, the Saudis remained nothing how to go on the so-called oil war. That is, they announced that it was ceasing to inhibit the production of oil and begin to produce 12 million barrels per day.

It seems that when Russia made the decision, we proceeded from the fact that we have accumulated sufficient financial reserves, while producers of American shale oil (in low price) will be very difficult. Well, Saudi Arabia doesn’t care because it is the enemy of Iran, which is kind of like our ally. I think that it was poorly thought out.

And Saudi Arabia, and Russia (the mouth of Novak) said that they will increase oil production amid falling demand in the world. How much is adequate policy and what it covers?

— Well, it is understandable why production increases in Saudi Arabia, there is simple arithmetic. You have two options. The first is to count in five years by selling oil at the old prices, constraining its production. Second — if they let production completely according to amount and sell it at competitive prices. The last option is more profitable than the first. That is, they are in the second case even more work will conquer new market niches.

But for Russia in this scenario, no reward. The rise of oil production (in Russia) — is a fiction. For the radical increase in production we have no possibilities. For a short time it can be done, but we’ve seen this before, who have increased production. These are the projects on Sakhalin, which operate under the PSA (the agreement on production section), “Tatneft” and a couple of small companies. And large our companies, doing everything possible to increase production slightly. The Russian oil industry and how it works to the maximum. No new projects.

— Novak confidently stated that we have a short period can increase oil production by 200-300 thousand, even 500 thousand barrels a day…

He also boldly stated that we are reducing production by previous arrangement with OPEC, but in reality it was not.

— Do I understand correctly that from the Russian side and from the Saudis it’s all a game to the suppression of the American companies producing shale oil? But why? They are already bad.

American shale companies out, they are very flexible. They and the prices $ 35 normal, and they will work. And the Saudis will survive. And in Russia, when all that was figured out, I decided that if prices fall, revenue from the sale of oil, we’ll still get the dollars. The national currency is still devolveram, and will continue to spend on capital investments in rubles. But not counted more. When world oil prices fall, the amount of commercially viable reserves in Russia is declining. The higher price would produce a certain volume of oil at lower already less.

For example, our energy during the previous oil price stated that we have 30% of the total oil production commercially viable, and the remaining 70% — hard to recover reserves. Now, with the new prices, we will have a commercially viable only 20% of recoverable oil. In other words, reducing the ability of oil companies to extract oil at low cost. But this one is not counted. We have and so is the devastation crafts intensive methods of production and new projects nobody really goes.


— And why go there when the payback period for these projects will come in 7-15 years. Who is there now will go, who knows what will happen in seven years? The only little thing any for this connect, that’s all.

Head of the RF Ministry of economic development said that we have the lowest cost of oil production in the world. Interestingly, in Siberia, in the Khanty-Mansi Autonomous area, too?

— Watching what is considered a cost. Novak with Sechin (Igor Sechin — the head of “Rosneft”, — “Rosbalt“) is considered a cost of the so-called lifting costs — the cost of maintenance of the existing wells and equipment. In such calculations, are not included capital expenditures, taxes, funds for the construction of wells, infrastructure, administrative costs, General arrangement of crafts. Transportation of oil from Siberia to the export port or to the border in such calculations is also not laid. And then say we cost of oil is less than three dollars per barrel. In fact, when calculated, then we have the cost of oil will, at least, $ 18. But this is assuming the cost in our opinion. And the Saudis, the cost of Russian oil is $ 40. So, this is how to count…

— But on the plus, we and wells deeper and the conditions of oil production are more severe…

— The same Saudis can, for example, stop the hole and return to it after three years, and to work there again. Our conditions are completely different, the Geology is different, the depth of other and different quality of oil. If we have somewhere in the Khanty-Mansi Autonomous district to stop well she a few days will be clogged by ice crystals, and cheaper to drill a new one than to restore this.

— That is, it turns out the words that we have the lowest cost of oil in the world — a pure bluff?

— Well, what to do?.. We live in the Kingdom of crooked mirrors and bluff we are fed here every day.

© 2020, paradox. All rights reserved.

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