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OPEC keeps oil output quotas unchanged to beat rivals

December 07, 2015, 18:36 UTC+3 Alexandrova Lyudmila
© Egor Aleev/TASS

MOSCOW, December 7. /TASS/. Member states of the Organization of the Petroleum Exporting Countries (OPEC) will possibly increase the oil output quota rather than reduce it in the near future, considering that sanctions against Iran will be lifted, Russian experts say.

The member countries of the oil cartel, which accounts for about 40% of global oil production, primarily Saudi Arabia, are ready to sacrifice their oil revenues for the sake of keeping their share on the market. Competition on the world energy market will intensify and Russia should be prepared for this.

A regular OPEC meeting was held in Vienna on Friday. Despite low oil prices and a surplus of crude oil on the market, the oil cartel made no decision on cutting the output quota and left unchanged the actual production level, which exceeds the quota by an average of 1.5 million barrels a day.

OPEC’s official quota has stood at 30 million barrels a day since 2011 but the oil cartel regularly exceeds it. Today, OPEC member states produce 31-32 million barrels a day.

The news on OPEC’s decision immediately caused a fresh fall in oil prices: the price of Brent crude dropped below $43 per barrel on the market. Analysts say oil prices may fall even further. Specifically, Goldman Sachs does not rule out that oil prices may plunge to $20 per barrel.

Russia’s Economic Development Ministry has calculated key parameters for the scenario of an oil price plunge to $20 per barrel.

Energy Development Fund Director Sergei Pikin believes that OPEC acts in the interests of Saudi Arabia. "In this way, it is forcing rivals out of the market, expecting that these rivals will go bankrupt while the share of Saudi Arabia will not only decrease but will possibly increase," Actual Comment web portal quoted him as saying.

"They are ready to continue extracting the maximum oil volume and are ready for a price of $40 and even less per barrel," he said.

"OPEC has a key task to keep its share on the markets," Analytical Department Head of the National Energy Security Fund Alexander Pasechnik told TASS.

"So far, some cartel members, first of all, Saudi Arabia, are ready to produce more to the detriment of their social sector," the expert said.

Besides, they are seeking to stifle the shale oil revolution in the United States, he added. "They don’t want to limit the quotas, all the more so as they don’t understand yet what Iran’s share will be."

Meanwhile, no discipline can be seen within OPEC, the expert said.

"It has been decided to keep the quota at its current, actual level. The word ‘actual’ is a key word. This means they admit that they produce more than they are bound by their accords. According to various estimates, excessive output amounts to 1.2-2 million barrels. They may even decide on expanding the quota in the summer of next year, considering that the sanctions against Iran will be lifted soon," the expert said.

There can be no global consensus on oil output volumes in the foreseeable future, the expert said.

An oil price fall is not so essential for Americans, he added. "Well, shale production may cease to exist on certain sites. But, generally, cheap energy resources are a boon for the US economy," the expert said.

For Russia, however, cheap energy resources mean problems with export revenues, he added.

Competition on the world energy market will intensify, considering OPEC’s policy, and Russia should be prepared for this, the expert said.

"Companies are prepared for such challenges from the viewpoint of output - the cost of oil production in Russia remains one of the lowest in the world. But from the viewpoint of federal budget revenues, there are certain risks, of course."

Oil prices may fall dramatically for a short period, the expert said. "Much will depend on Iran’s position. But so far, their internal markets [in Iran] experience a shortage."

"Oil production in Russia will decrease after all," Associate Professor of the Higher School of Economics Oleg Anashkin told TASS.

"A low oil price means that there will be no investment. If there is no investment, then there will be a natural decline in output. Moreover, this decline will be considerable," the expert said.

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