Oil prices have fallen to a critical minimum: what will Russia do?

The cost of a barrel fell despite OPEC+ production cuts

Oil prices suddenly and sharply collapsed. The price of a barrel of Brent has dropped to its annual low of $75. The export restrictions by OPEC+, approved at the last meeting of the alliance members, had little effect on stagnant market prices. Russia, which in previous years provided the West with the required volumes of energy resources at relatively cheap prices, now, due to Western sanctions, prefers to extract raw material revenues from exports to Asia.

The price of February Brent futures on the London ICE Futures exchange fell to $74.7 per barrel. The trading result was disappointing: in just one day, a barrel fell in price by almost $3. Pressure on the market was exerted both by weekly data from the US Department of Energy, which showed a sharp increase in motor fuel reserves by 5.42 million barrels, and by dumping from Saudi Arabia, whose producers lowered the price of their Arab Light export grade of raw materials, supplied mainly to Asian countries. regions. The discount compared to hydrocarbons exported from neighboring Gulf producing powers has reached more than 50 cents per barrel, prompting stock traders to increase trading in oil supplied by Riyadh.

Stock quotes were not affected by the latest decision of the OPEC+ countries to prolong the decision to reduce oil supplies to the world market in the first quarter of next year (by at least 1.7 million barrels per day), nor by subsequent expert forecasts about the upcoming additional reduction in fuel reserves large countries. “It was the Saudis who wanted to continue to put pressure on oil prices by reducing production,” explains Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. “However, they apparently did not take into account that the market played out the decision to reduce production in advance and therefore quotes are now declining. However, since the winter promises to be cold, prices may rise again after the New Year.”

Meanwhile, experts believe that the threat of a split among the members of OPEC+, an organization that until recently acted as a “chronometer” of oil prices, is gradually growing. In particular, the United Arab Emirates and Iraq have significantly increased the export of their hydrocarbons in recent months, earning from such operations, according to independent auditors, at least $35 billion. They will most likely continue to release larger quantities of hydrocarbons onto the market, contrary to the general course of the alliance for reduction. “Brent is currently trading at $74,” notes BitRiver financial analyst Vladislav Antonov. — Meanwhile, there is a possibility of a barrel falling to $70. The market is negatively impacted by investor fears that the voluntary production cuts announced by OPEC+ countries will not be implemented in full. Therefore, there remains a risk that the price of “black gold” will decline to $65.”

Disappointing news for the commodity market comes from overseas. The US Department of Energy reported record oil production – in September, American companies increased their production figures by 1.7%. “Since the beginning of 2022, oil production in the United States has increased by 800 thousand barrels per day. Today, America exports about 4 million barrels per day, which exceeds the figure of all OPEC+ members except Saudi Arabia. The extension of production cuts is just an attempt to regain influence on pricing in the global energy market,” notes Artem Deev, head of the analytical department at AMarkets. “Given the growing American oil exports, after the New Year, oil prices are likely to fall by another 10-15%.”

By the way, our country still manages to benefit from the unstable situation in the global fuel market. In October, Russia’s oil revenues amounted to $11.3 billion, or 31% of the country’s total budget revenues for the month, Bloomberg reported, the highest since May 2022.

Only a constructive and collegial decision by the Middle Eastern mining powers can save the prices of “black gold”. “Starting January 2024, OPEC+ participants may take emergency measures to restore balance in the market,” said Natalya Milchakova, leading analyst at Freedom Finance Global. “For example, Saudi Arabia and Russia are capable of reducing production even further. This will not stop the fall in prices, but perhaps other OPEC+ countries will also begin to reduce oil production. An increase in the cost of a barrel of Brent to $90 or higher is quite possible. As long as world oil prices do not fall below $70 per barrel, the revenue side of the Russian budget will not have any significant problems, especially since the Urals discount to Brent has noticeably decreased. Accordingly, our government’s plan for oil and gas revenues will be fulfilled: Russia will receive at least 8 trillion rubles in oil and gas revenues in 2023.”