Countries began to play with oil prices: what will be the consequences of export cuts

“The cost of a barrel of oil in the range of $70-80 is considered comfortable”

Russia has announced plans to cut oil exports by 500,000 bpd from August. Saudi Arabia will also extend its voluntary production cut by 1 million barrels. To support the efforts of the two states, Algeria joined the voluntary cuts, which amount to about 1.5% of the world supply. The country will reduce oil production by another 20,000 bpd next month. What is the cartel trying to achieve, how will prices react, and what “bonuses” will the Russian budget receive? Experts told about this “MK”.

Sergey Ramaninov, analyst at Markets. Money. Power.”: “The current decline in production suggests that countries whose incomes are heavily oriented towards oil revenues are trying to artificially support oil prices. There is also speculation that current oil prices are already bordering on a price that allows these countries to run budget surpluses.

What will happen to prices? In our opinion, the main impact on oil prices will be the balance of supply and demand. If a global recession occurs around the world, which everyone is waiting for in 2023, this will greatly affect the demand for oil, and, therefore, its price.

For the Russian budget, given the current exchange rate, it is much easier to maintain oil prices than to export more oil and oil products. The announced reductions can be leveled for the budget due to rising prices and keeping the ruble exchange rate at the current level.”

Andrey Loboda, economist, director of communications at BitRiver: “Since 2015, we have been witnessing a sharp confrontation between the countries of the OPEC+ alliance and oil companies from the United States and Canada on the market. Market participants from North America have been playing for a long time to lower prices, exporting raw materials to the EU and China. However, the post-pandemic economic recovery in Western Europe today demonstrates near-zero dynamics, while in China it is more modest compared to analysts’ expectations.

Against the background of interest-free work of the US Federal Reserve printing press and the depreciation of the purchasing power of the dollar, a barrel of Brent should already be trading at least in the range of $80-100. But before the new presidential elections in the United States, it is unlikely that oil will be allowed to accelerate to the upper marks of the specified range.

The reduction in oil production by the largest market participants is an adequate response to the confrontation with the US and Canada, moreover, the energy crisis in the EU has not ended, Europe is buying less energy at higher prices against the backdrop of deindustrialization.

In mid-summer, oil is likely to trade in the range of $71-77 per barrel of Brent. This is quite a comfortable level for Russia and not very fair for oil-producing countries. The confrontation between OPEC+ and the West continues and the slightest failure in the US positions could lead to an explosive rise in commodity prices.”

Ivan Samoylenko, Managing Partner, B&C Agency: “OPEC+ announced oil production cuts in advance because the alliance predicts a drop in energy consumption against the backdrop of a global recession. Which, in fact, is happening, and the fall in oil prices only reflects this process. The global economy is stagnating, production in the leading countries of the world is declining, a recession has officially begun in Europe, and so on. Therefore, the cartel decided to reduce oil production in order to maintain an acceptable price level. The cost of a barrel of oil in the range of $70-80 is considered a comfortable level for both producers and consumers – OPEC + is trying to maintain the cost of a barrel within this framework.

It is definitely not worth expecting that prices will rise sharply, because consumption will not grow – these are the forecasts of various specialized world agencies. The main thing is that they do not decline even more – this will already be exactly the result that will suit both OPEC +, and Russia, and other countries.

For the budget of our country, it is not so much world oil prices that are important, but the size of the discount for our Urals grade. But the discount is gradually decreasing, which is a positive moment for the budget. The main thing for the sustainability of our country’s income is that our main partners (China, India, Turkey) do not reduce the volume of purchases of raw materials.”