Oil Prices Rise, Recovery Of Revenues Is Possible

Saudi Arabia and Russia, which are the world’s largest oil producers, agreed on Monday, to extend crude production cuts for another nine months, meaning that the Algiers agreement, which was drawn up at the Vienna meeting, will extend until March 2018, in a new effort to curb oil market bottlenecks in the global oil markets and will push the prices to the rise, as this would revive some of Algeria’s oil revenues and restore the hope of reviving the fund to control the revenues that are subject to the excess of the value of the oil revenues.

A joint statement that was issued by the Saudi Energy Minister, Khaled Al-Faleh, and his Russian counterpart, Alexander Novak, said that they would “do all that is necessary to reduce stocks. Among the proposed solutions and mechanisms to reduce the stock of the oil market, to extend the Vienna agreement on reducing production quotas of member states within the OPEC until March 2018. 

This decision comes 10 days before the planned meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, that is scheduled for May 25.

The Vienna meeting, which will bring together the OPEC 13 countries, carries on its agenda with one point that is related to the possibility of extending the production cuts that is reached in December 2016 between OPEC and 11 non-member countries, including Russia, an agreement that was preceded by a preliminary meeting in Algeria, to cut production to 1.2 million barrels per day.

According to Reuters news agency, the Saudi and Russian energy ministers, whose countries’ production accounts for 20% of world production, were reflected  Monday on the oil stock, as the contracts of Brent crude future production increased, which is the reference of Algerian oil at $1.39, which made the price reach $52.23 per barrel, and the market previously expected the extension to be only six months.

After the nine-month extension becomes the minimum limit that is expected for the OPEC meeting, the organization will take on the task of convincing its members and some producers outside it to support the move that is confirmed by sources from the Ministry of Energy in connection with Echorouk that Algeria will strongly support this endeavor and will seek to play new diplomatic roles, considering that it was the owner of the first endeavor and played active roles on the axis of Saudi Arabia and Iran, and Russia as well, to convince everyone to the need to reduce production, which was rejected by many Member at the beginning of the crisis.

Iraq, which is an OPEC member and oil-producing country, expressed its support for extending the agreement for only six months, while Kazakhstan, which is not a member of OPEC, said it would find it difficult to join any new agreement under the old conditions. Oman said it fully supported the nine-month extension.

Efforts of the world’s largest producers to reach agreement and achieve a high level of commitment by the end of this year, are a good news for Algeria, as the price above $ 50 is the reference price for its budget, and it will ease the pressure which it is experiencing. 

The difference between the reference price and the actual market price is likely to contribute to the recovery of the revenues control fund, which remains for several years the government’s solution and its mechanism to deal with the budget deficit that is threatened by the absence of excess of oil collection for this year, especially since the funding of the budget deficit will lead to withdrawing 941 Billion DZD from it, and this may result in the closure of the fund definitively.