Moscow did not support OPEC’s proposal of reduced oil production due to the coronavirus epidemic.
Therefore, relations between Russia and the cartel have worsened, while the crude oil market is threatened by a price collapse.
What strategy do Russian tankers follow?
The oil market has a fever: prices rise and fall, depending on the news about the spread of the coronavirus, says Maxim Rubchenko, a columnist for Russian news.
The OPEC lowered its forecast of demand for oil in 2020 by 230,000 barrels per day.
Panic in Saudi Arabia
In this context, Saudi Arabia, the main oil producer and in fact, OPEC leader, called for a production cut to keep prices at $ 60 per barrel or more.
The Joint Technical Committee of the Organization of Petroleum Exporting Countries and their allies (OPEC) recommended on February 6th that an additional cut of 600,000 barrels per day until June to mitigate the impact of the new coronavirus on the crude oil market. Riyadh asks the partners to agree on this as soon as possible.
Oil below $30? They forecast a perfect storm in the market
The Saudis have every reason to panic, says Rubchenko. Beijing has already refused to buy liquefied gas from several countries. “Due to the quarantine we do not have enough workers in the LNG terminals,” explained the Chinese company CNOOC.
China can do the same with oil since demand fell 20% to the epidemic. For Saudi Arabia, which last year exported a record volume of 83.32 million tons (1.67 million barrels per day) to China, this will result in huge losses.
Riyadh managed to convince all OPEC members to reduce production. However, Russia, the largest producer outside the cartel, did not support the new restrictions.
Russia prefers to wait
Russian oil corporations believe that the coronavirus epidemic will not alter the balance of supply and demand. The fall in prices at the beginning of February, according to them, is due to panic in the media. They are sure that the situation will soon be normalized.
In fact, last week it rose from $ 53.11 to $ 56.5.
Many foreign experts also point out that panic in the markets will not last long.
“The new virus probably had a slightly exaggerated impact on the evaluation of assets,” said the manager of the world’s largest hedge fund Bridgewater, billionaire Ray Dalio, adding that he expects a notable recovery in prices.
According to Kristalina Georgieva, the head of the International Monetary Fund (IMF), there could be a sharp decline in the economy followed by a “very rapid recovery”, which is known as a V curve.
Therefore, Russian oil tankers prefer to wait. At the February 12th meeting with the Ministry of Energy, representatives of the main Russian oil and gas companies spoke in favor of maintaining current production volumes until the end of the second quarter. Then the consequences of the epidemic can be assessed more adequately.
The Russians conquered the US market
The interests of Russia and OPEC now diverge. The cartel members demand higher oil prices, especially Saudi Arabia, whose budget deficit could be 7.4% this year, according to some sources. Many other OPEC members need to keep at least $ 60 per barrel to ensure their economic sustainability.
However, Russian oil companies will not benefit much from the increase in prices if production is cut, since most of the additional revenue will go to the country’s budget in the form of taxes. On the other hand, producers are committed to conquering the US market.
It is that many oil refineries in the US are adapted to process Venezuelan heavy oil, and after Trump imposed sanctions against Caracas, they had serious problems with the supply of raw materials.
Unexpected turn: Russia increases oil sales to the US thanks to sanctions
Thus, the level of supply of Russian petroleum products to the US in October exceeded more than twice that of the previous year, amounting to 20.9 million barrels. According to the US Department of Energy, Russia ranked second among suppliers, yielding only to Canada.
The US is considering sanctioning Rosneft for its relationship with Venezuela but fears market chaos, But in order to continue the expansion, Russia needs to maintain adequate production volumes, so the new restrictions proposed by OPEC could seriously harm the business.
Meanwhile, panic is slowly fading away
The OPEC + Technical Committee has already canceled its recommendation to cut 600,000 barrels, said Algerian Energy Minister Mohamed Arkaba.
In fact, the committee supported the Russian proposal to extend the OPEC + agreement until the end of 2020 without changing the quotas. The final decision should be made by the OPEC + energy ministers at the March 6th meeting.
