Commodity descent: the price of Urals oil has dropped to a minimum since March 1999

The price of Russian grade Urals oil reached its lowest level in 21 years. On Thursday, April 2, reported analytical agency Argus. According to the organization, on the eve of the price of raw materials fell to $ 10.54 per barrel - for the first time since March 1999.

According to agency experts, since the beginning of the week, the export price of Russian oil has remained negative. Transportation, export duties and other expenses exceed the average cost of a barrel of Urals.

According to RT chief analyst at BCS Premier Anton Pokatovich, the current situation can lead to an increase in Russia's budget deficit in 2020 to 2.5-3% of GDP. Moreover, the total volume of oil and gas revenues of the treasury may decrease by 30–40%.

At the same time, specialists interviewed by RT do not consider the observed situation in the energy market critical for the country's economy. Thus, analysts predict a gradual recovery of quotations before the end of the year and point to the high volume of Russia's reserves, which allows fulfilling all budgetary obligations even at low oil prices.

“Russia is currently better prepared for a price shock in the oil market than, for example, Saudi Arabia. Firstly, we have a National Wealth Fund (NWF) with a volume of more than 8 trillion rubles, and secondly, the budget is set up at the rate of $ 40 per barrel against $ 80 for the Saudis. According to rough estimates, even if the treasury’s oil revenues decrease by 50%, the budget will be stable for about three years, ”said Ivan Kapustyansky, Forex Optimum lead analyst, RT.

Deal end

The reduction in the price of Russian oil at the auction on April 1 took place against the background of a general decline in world prices for energy raw materials. So, on Wednesday, Brent quotes on the ICE exchange in London fell by 6% - to $ 24.8 per barrel, but then won back a bit - up to 25.54.

In addition to the situation with the spread of coronavirus, pressure on prices is also exerted by the termination of the OPEC + transaction. Recall that back in 2016, OPEC countries and 11 states outside the cartel, including Russia, agreed to synchronously limit oil production. Fulfillment of the terms of the contract was supposed to restore the balance of supply and demand in order to keep oil prices from significant fluctuations.

Participants repeatedly extended the duration of the transaction and increased the volume of production cuts. The last time such a decision was made in December 2019. The parties agreed to reduce oil production from January 1 to March 31, 2020 by 1.7 million barrels per day relative to the level of October 2018.

Most of all, the extraction of raw materials should have been reduced by Russia and Saudi Arabia - daily by 300 thousand and 482 thousand barrels, respectively.

However, since the beginning of 2020, energy consumption in the world began to fall sharply against the backdrop of the spread of coronavirus, and oil began to gradually become cheaper. As expected, members of the OPEC + alliance were supposed to further reduce production and thereby stabilize the market situation. Meanwhile, on March 6, following the results of the meeting, the parties did not reach consensus and decided to completely abandon all previously undertaken obligations.

Starting April 1, energy exporting countries began to increase oil production and export. According to experts, such actions will lead to a significant increase in the supply of raw materials in the world market and may provoke an additional reduction in prices.

“As it became known, Saudi Arabia on Wednesday increased production to 12 million barrels per day. Compared to last month, growth was 2 million barrels. In addition, the Saudis plan to further increase oil production in May by 600 thousand barrels per day, ”said Artem Deev.

At the same time, earlier in Riyadh they also announced the provision of record discounts over 20 years for buyers of raw materials from the USA, Northern Europe and Asia. Following Saudi Arabia, Iraq, Bahrain and the UAE also announced a reduction in the cost of their products for customers.

At the same time, Russia has no plans to increase oil production amid global overproduction of raw materials. This was announced on Thursday by Minister of Energy Alexander Novak in an interview with Reuters.

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Moreover, news on the spread of coronavirus continues to exert pressure on the cost of raw materials. According to official data from the World Health Organization (WHO), the total number of infected people in the world exceeded 857 thousand, more than 42 thousand infected died.

“Even before the coronavirus epidemic, it was expected that global oil supply would exceed demand. Currently, about 3 billion people in the world comply with quarantine, and the economic activity of people is minimized. As a result, this can lead to an even greater decrease in oil demand, which will only increase pressure on prices, ”said Ivan Kapustyansky.

Note that in 2019, global oil demand averaged about 100 million barrels per day. According to the International Energy Agency (IEA), almost 60% of this volume was for fuel for vehicles. As the head of the organization Fatih Birol previously stated, due to restrictions on air travel and quarantine measures, global energy consumption could be reduced by almost 20%.

To help the barrel

However, already at the auction on April 2, world oil prices are showing steady growth. In the middle of the day, Brent and WTI quotes grew by more than 10% - to $ 27.3 and $ 22.4 per barrel, respectively.

“Oil quotes are growing on the news that the US president intends to hold a meeting with the leadership of major oil companies on Friday. During the meeting, it is planned to discuss measures of state support for the oil industry. So, just yesterday, the American company, Whiting Petroleum, engaged in the production of shale oil, has already filed for bankruptcy, ”said Artyom Deev, head of the AMarkets analytical department, to RT.

Moreover, some support for oil prices may come from the recovery of China's economy. This point of view in an interview with RT was expressed by Natalya Milchakova, deputy head of the Alpari information and analytical center.

Earlier, the PRC State Committee on Health announced the end of the epidemic in the country. In this regard, the Asian Republic began to restart its plants after quarantine. According to the Ministry of Industry and Information Technology of China, almost 72% of small and medium-sized enterprises have returned to work at the moment. Against this background, growth in business activity in the manufacturing sector of China accelerated to a maximum over the past 2.5 years. This is evidenced by the data of the State Statistical Office of the country.

“If in China, which has already overcome the pandemic, energy demand begins to recover quickly, oil prices could rise to $ 35 per barrel in the near future,” Milchakova said.

In addition, investors reacted positively to reports of the start of negotiations between Russia and the United States on the situation in the oil market. The current state of affairs in the industry has already been discussed by the presidents and heads of the Ministry of Energy of the two countries.

“At the beginning of the week, Vladimir Putin and Donald Trump, during a telephone conversation, agreed on consultations on the oil market through energy ministers. There is a possibility that this conversation may become the basis for returning to the negotiation table to limit oil production. Even the scenario of a new union by analogy with OPEC +, which will include OPEC, Russia and the USA, is not ruled out, ”said Ivan Kapustyansky.

According to analysts, oil prices may significantly strengthen in the second half of 2020. According to experts, if the coronavirus pandemic ceases and new agreements are reached between exporters of raw materials, prices can again approach $ 60 per barrel.

“We believe that in the II quarter the price of Brent oil will average $ 30–35 per barrel, and in the second half of the year it will return to the corridor of $ 40-50 per barrel or to $ 45-60 per barrel, if the global economy shows a confident recovery,” - concluded Natalia Milchakova.