For the first time since January: why the price of Brent oil fell below $81 per barrel

On Monday, November 28, trading on the global energy market is accompanied by a sharp decline in oil prices.

In the middle of the day, the cost of crude Brent on the ICE exchange in London fell by 3.4% and for the first time since January 10 reached $80.83 per barrel.

Meanwhile, the quotes of the American brand WTI fell by 3.8% to $73.61.

The last time a similar value could be observed was on December 27, 2021.

Since the beginning of the month, oil on the global market has fallen in price by almost 15%.

The main reason for such dynamics was the reaction of investors to the worsening epidemic situation in China.

In connection with the increase in the incidence of coronavirus in China, experts fear a decrease in demand for hydrocarbons from the Asian republic, the world's main importer of raw materials.

“The Chinese authorities are following the path of zero tolerance for COVID-19, closing cities, stopping production.

As a result, China needs less oil products, and therefore the consumption of raw materials in the country is not growing.

This scares the market, ”Igor Yushkov, a leading analyst at the National Energy Security Fund, explained to RT.

According to him, additionally, market participants are alarmed by the risks of a global recession.

As the specialist explained, the rush increase in fuel prices in previous months led to a global acceleration of inflation, and in order to combat the increase in prices, central banks sharply raised rates.

As a result, business loans became less available, many enterprises began to close, and demand for energy around the world began to decline.

As Vladimir Chernov, an analyst at Freedom Finance Global, suggested in a conversation with RT, if current conditions persist, by the end of winter, the price of Brent oil may drop to $65-70 per barrel.

However, in the event of a further decline in prices, the OPEC + alliance may intervene in the situation, the expert is sure.

Recall that the OPEC + agreement includes 23 oil-producing countries, including Russia.

As part of the deal, the states jointly control the production of raw materials to achieve a balance between supply and demand in the global hydrocarbon market.

This policy is designed to keep the price of oil from sharp collapses.

“Participants in the OPEC+ deal will continue to fight for an acceptable price level.

If necessary, they can reduce oil production quotas, and raw materials will again begin to rise in price due to a reduction in supply on the world market,” Vladimir Chernov explained.

price impasse

In addition, according to Igor Yushkov, at the moment the quotes are being influenced by the introduction of a ceiling on prices for Russian oil, which is being discussed in Europe.

EU plans to limit the cost of raw materials sold by Moscow create additional uncertainty for the global market, the expert believes.

Recall that the introduction of a marginal oil price was provided for by the eighth package of anti-Russian sanctions, approved in early October.

As part of the initiative, it is planned to prohibit European companies from insuring and transporting raw materials from the Russian Federation by sea to third countries at a price above a certain limit.

Restrictions on Russian oil should come into force as early as December 5, and from February 5, 2023, they will also apply to petroleum products.

Nevertheless, the countries of the European Union have not yet been able to agree among themselves on the price ceiling itself.

So, if the majority of the EU states agreed with the limit proposed by the European Commission in the range of $65-70 per barrel, then, for example, Poland insists on reducing the figure by more than half - to $30 per barrel.

Warsaw considers the price cap presented by the EC to be too high.

According to the RF Ministry of Finance, Russia now sells its oil at an average of $70.6 per barrel.

Against this backdrop, the authorities of Poland and some other European countries are proposing to set a lower price ceiling, which is why negotiations within the EU "have reached an impasse," writes the Financial Times.

As Vladimir Chernov explained, the price ceiling of $65-70 per barrel will allow Russia to continue to receive windfall profits from the sale of hydrocarbons.

At the same time, the lower limit proposed by Poland may in the future turn into a blow for the entire European Union, the specialist is sure.

“It is assumed that the ceiling of $30 per barrel will force Russia to reduce oil production, since at such a cost some production projects will become unprofitable.

This will cause a shortage in the world oil market and drive up prices even more, which is unprofitable for Europe and the United States.

If Poland and the Baltic countries are still ready to sacrifice their economies for the sake of reducing Russia's income, then other countries are no longer there, ”the RT interlocutor added.

Only for their own

However, regardless of the level of the price ceiling, Moscow will not sell oil to those who support the restrictions.

This was announced yesterday by the press secretary of the President of the Russian Federation Dmitry Peskov on the air of the Russia 1 TV channel.

“We proceed with you from President Putin’s statement that

we will not trade oil and oil products and gas with such countries (set a price ceiling. -

Therefore, having the main, so to speak, line established by the president, one can still express confidence that in any case, no one will shoot themselves in the foot in our country, ”the Kremlin spokesman emphasized.

Vladimir Putin announced plans to cut off fuel supplies to countries that impose price restrictions in early September at the Eastern Economic Forum.

As the head of state emphasized, Russia is ready to fulfill its contractual obligations to energy buyers.

However, if the political decisions of the West are contrary to the current treaties and the interests of Moscow, the trade in raw materials will completely stop.

“Absolutely stupid decision.

If someone tries to implement it, it will not lead to anything good for those who make this decision ... Those who impose something on us are not in the position today to dictate their will to us.

Let them come to their senses,” Putin warned.

Later, the Russian leader warned that the initiatives discussed in the EU would only worsen the investment climate in the entire world energy sector and provoke an increase in the global oil shortage.

As confirmation of his position, the President cited the words of the famous American economist, Nobel Prize winner Milton Friedman.

“If you want to create a shortage, for example, of tomatoes, then you just need to pass a law that retailers cannot sell tomatoes for more than two cents a pound.

You will immediately get a shortage of tomatoes.

It's the same with oil or gas," Putin quoted Fridman as saying.

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• © Alexey Babushkin

According to Bloomberg, Moscow intends to completely ban its companies and traders from selling oil to those countries and enterprises that join the price cap mechanism.

As the newspaper writes, citing its own sources, the corresponding decree is already being prepared in the Kremlin.

“Indeed, this can be done in the form of a special legislative act that will prohibit our companies from supplying oil to some countries at prices below world prices, or in the form of informal agreements, as was the case with OPEC +.

Then Putin gathered large companies and offered to reduce production so that world oil prices would rise, and the business agreed.

Now there may be the same approach,” Igor Yushkov believes.

In any case, Russia will continue to sell its oil, but only to those countries that do not join the restrictions, the specialist stressed.

At the same time, according to Vladimir Chernov, Moscow has already managed to redirect a significant amount of supplies from the West to the East.

“A significant share is redirected to India and China.

The rest can be mothballed until a buyer is found.

Of course, due to sanctions risks, many third countries may refuse to import Russian oil for more than the established ceiling.

However, the Russian Federation will either sell at $65-70 per barrel acceptable to it, or reduce production, and the resulting deficit will lead to an increase in world prices, ”Chernov explained.