03.07.201901:55 Forex Analysis & Reviews: Why OPEC+ extended the deal - SEB

According to analysts of the largest Swedish bank Skandinaviska Enskilda Banken (SEB), OPEC countries and independent oil producers have easily agreed to prolong the deal to limit oil production for several reasons. The main one is that the continuation of the agreement has a positive effect on the current state of the largest oil producers, Russia and Saudi Arabia, and strengthens their position in the global oil market.

Over the past 28 years, since 1991, the share of OPEC in the oil market has dropped to its lowest levels. At the same time, the countries of the cartel are trying to keep prices at a favorable level within the OPEC+ deal. SEB analysts pay attention to the fact that the share of key participants in the agreement on limiting production - Russia and Saudi Arabia - remains almost unchanged. Analysts believe that the main reason for the decline in the share of OPEC is a drop in production in Venezuela and Iran.

SEB believes that the indicators of oil production in Russia, despite compliance with the transaction, exceed the average values over the past four years. As for Saudi Arabia, its production is slightly less than the average four-year value. In such conditions, the key players in the oil market feel comfortable, making a decision to extend the transaction and pushing other cartel members to this. SEB is sure: the only thing that is required from Saudi Arabia and Russia is to stop increasing production following the growth in demand. If such a scenario is implemented, the price of oil will remain in the range of $60– $70 per barrel, which will favorably affect all market participants, analysts say.

Recall, on Monday, July 1, the OPEC+ agreement on current conditions was extended for 9 months. The decision of the cartel and independent oil producers was expected, but the cost of oil was adjusted by 2%. The correction in oil prices was affected by a reduction in the severity of the trade conflict between the United States and China, experts believe. The current situation has made a positive impact on the black gold market, although the possibility of extending the transaction and its impact on prices were incorporated into the price of oil.