Oil prices are predicted to rise: how will this affect the Russian economy

The global energy market depends on voluntary production cuts and discounts on raw materials from our country

The International Energy Agency (IEA) predicts a shortage of oil on the world market in the near future. Consequently, Brent quotes, which have not recently fallen below $80 per barrel, risk rising significantly above this level. When and under what conditions will “black gold” become more expensive and whether Russia will be able to get any financial advantages in this case, independent industry experts explained to MK.

According to a report by the International Energy Agency (IEA), until the end of 2023, the planet’s oil market will be in a state of “significant deficit” due to the voluntary reduction in oil production by the world’s main players – Russia and Saudi Arabia. IEA analysts note that the OPEC+ alliance of oil-producing countries will produce 900 thousand barrels per day less than demand, the dynamics of which are still difficult to predict. On the one hand, following the results of the third quarter of this year, some Western and Asian countries reduced purchases of raw materials by a total of approximately 500-600 thousand barrels daily. On the other hand, exports to China, due to the development of local petrochemicals, are slowly increasing and will reach 17 million barrels per day from the beginning of January 2024. IEA analysts in their report clarify that the extension of the voluntary reduction in oil production until the end of the year, which Russia and Saudi Arabia are going to agree on as part of the OPEC+ agreement at the end of November, will lead to a significant shortage of raw materials in the oil market: only next year will the production of hydrocarbons by the participants alliance risks falling to a level that is almost 1 million barrels behind the planet’s consumer dynamics.

Industry experts suggest that stabilizing oil prices in the range of $80-90 per barrel looks quite fair. On the one hand, traders will expect regular anti-Russian sanctions that will tighten the sale of our country’s “black gold”; on the other hand, they will begin to pay more attention to targeted transactions for the sale of “hot” barrels, so as not to miss the opportunity to sell their own raw materials at the peak of stock exchange levels.

“Russia is trying to ensure that production, which is now at the level of 10.5-11 million barrels per day, firstly, corresponds to domestic demand of 3.7-3.8 million barrels; secondly, it did not interfere with stable foreign sales of raw materials, the volume of which is estimated at 7 million barrels,” notes the Markets. Money. Power” Sergei Ramaninov.

The maneuvers of domestic raw materials companies have not yet saved export revenue from the sale of “black gold”. In October, according to the IEA, Russia reduced the export of oil and petroleum products to 7.5 million barrels per day, and our country’s revenue from foreign supplies of “black gold” fell by $25 million per day.

“Russia produces about 10% of the world’s globally consumed oil and exports about half of the produced “black gold,” explains Dmitry Alexandrov, head of the analytical research department at IVA Partners. — It is difficult to seriously increase your share in the international market in the current realities of Russia. It is more important to maintain the overall volume of sales of energy resources, trying to slightly strengthen our position in the expanding eastern direction – to agree on new projects in the field of production, processing and marketing of energy resources.”

Meanwhile, as Freedom Finance Global analyst Vladimir Chernov warns, the increase in foreign supplies of hydrocarbons will mainly depend on the decision of the Russian authorities to voluntarily reduce oil exports. In April, Russia reduced foreign shipments of raw materials by 500 thousand barrels per day, and in September it cut these volumes by another 300 thousand barrels. The initial reduction in exports by 500 thousand barrels is planned to be extended until the end of 2024, and additional limits (currently 300 thousand) will be reviewed once a month. “These volumes of voluntary production cuts will be counted from production quotas determined by OPEC+. For 2024, Russia’s quota was reduced by 650 thousand to 9.3 million barrels per day. Against this background, Russian exporters can hardly hope for additional shipments of hydrocarbons abroad,” the expert believes.

The main question that interests foreign stock exchange speculators is whether our country next year will be able to provide market participants with a serious discount on hydrocarbons, which could once again spur the world market’s interest in energy resources from domestic oil “storehouses.”

Currently, the Urals discount to Brent is 14.75%. At the beginning of 2023, it exceeded 30%, but the discount was reduced due to amendments to the tax base methodology, where the discount was limited when calculating the mineral extraction tax and oil companies had to either reduce it for buyers or pay part of the taxes from their own pockets. In 2024, this measure may continue to be used, because it has proven to be effective – next year, discounts can lower the cost of our hydrocarbons by another 8-10%, but make their prices more attractive on world trading floors by about the same amount.

“Russia cannot yet afford to significantly increase oil exports, since our production is limited by OPEC+ production quotas and Western sanctions ceilings on raw materials,” notes Chernov. “We can only redirect and redistribute excess volumes to other regions. Additional exports to Asian countries or Latin America could increase if they are redirected from other regions. First of all, an increase in demand for petroleum products in 2024 is expected in China amid the recovery of its economy. Therefore, it is precisely this direction that Russia needs to focus on when choosing new long-term raw material partners.”