The world oil market has been in particular need of signals from oil exporters for several weeks, anticipating results of the OPEC/OPEC+ meetings scheduled for June 3 and 4. With stock jobbers confused about the alliance’s further production plan, world oil prices have not gone beyond the May base quotation corridor of $73 to 77 ahead of the meetings (June 2).
June 4 saw Vienna host a meeting of OPEC and some non-cartel oil-producers engaged in the oil production reduction agreement (OPEC+), including Russia, where they bargained to extend the limiting agreement (including the "voluntary" quotas in force since May) for 2024, with a production quota reduction by 1.4 million barrels per day starting January 1. The total production volume of the countries involved has been set at 40.46 million b/d. The rationale for this resolution in the communique is "to achieve and maintain stability in the oil market, and to ensure long-term predictability."
Russia will extend the regime of "voluntary" 0.5 million b/d reduction until the end of December next year.
Moreover, Saudi Arabia announced a welcome cocktail to the market bulls — an additional voluntary cut in its crude oil production amounting to one million barrels per day, starting July for a month that can be extended, with no reasons specified. As a result, the kingdom will produce 9 million barrels per day in July, which complies with Russia’s estimated production volume. The decision was finalized by the Saudis as an efficient option to back the OPEC+ alliance’s policy of ensuring stability in the global black gold market.
Brent prices eventually made no hit on the news from Vienna: on June 5, the "increase" was about $1, slightly exceeding the mark of $78 per barrel. Which is quite logical so far – the total OPEC+ oil supply will stay the same this month after all, and China’s long-expected demand breakthrough seems to be falling behind schedule.
And still, the alliance issued a comprehensive solution, which most industry experts and investment banks failed to predict, as they expected no tightening of OPEC+ quotas for 2024, but thought, for instance, that the delegates would concentrate on discussing issues of intra-cartel discipline.
A few days before the session, a curious news appeared that OPEC banned Reuters, Bloomberg and Wall Street Journal journalists from visiting its Vienna headquarters. A statement to this effect came on May 31 from the Financial Times (FT), citing sources. According to the newspaper, the ban was initiated by Saudi Arabia and imposed on a single event — the OPEC+ meeting. With no reasons revealed, it is still clear that the three outlets stirred the pot by issuing premature conclusions, not always reliable, about discussions by the alliance members.
Prior to the OPEC+ meeting, the Western press hyped up the story that the Saudis were allegedly unhappy with Russia’s failing to fulfill its May commitments on limiting oil production. For example, Bloomberg was looking for evidence of "surplus" production in the Russian Federation, deeming see oil export indicators as still very high, which may reflect failure to provide for an extra production decline as announced by the Russian authorities. Yet Deputy Prime Minister Alexander Novak rebuffed export growth, pointing to a simultaneous decrease in pipeline supplies to the European Union. The plan of cuts in the country is being maintained, he stressed.
Meanwhile, Russia’s energy export pivot is underway. In particular, the Reserve Bank of India (RBI) reported that in fiscal year 2022/23 (ended March 31), oil imports from Russia increased 14 times as compared to the last year, from $2.2 billion to $31.02 billion. The financial regulator’s annual report reads that the share of Russian supplies in the import of hydrocarbons to India has grown from 2% to 19.1% over the reporting period. Russia is also noted to have become major oil supplier to India, outdoing Iraq, Saudi Arabia and the UAE. According to the RBI, the Russian Federation supplied 50.84 million tons of oil to India within the past financial year.
Russia, meanwhile, proceeds with increasing the supply of energy resources to China, with the figure reaching 40% in 2023, according to Alexander Novak. Russian exporters reportedly have issues with suspended rupee revenues from fuel and energy exports, though it is not the case with yuan. Unlike India, Russia does have things to buy from China.
The export of diesel fuel from Russia to Saudi Arabia is on the rise, having reached record levels, Reuters reported on May 29. Riyadh scalps fuel purchased from Russia mainly to Singapore. There is an obvious market trade-off between the key OPEC+ partners.
