On March 16, the cost of Brent crude on the London Intercontinental Exchange (ICE) fell to 16.26 Moscow time to $ 29.97 per barrel. The last time it fell below this mark in January 2016.
On March 16, the cost of a barrel of Brent crude on the London Intercontinental Exchange (ICE) fell to 16.29 Moscow time to $ 29.97. The last time oil cost so much in January 2016
Oil prices began to decline in January, when the outbreak of coronavirus was followed by a decrease in fuel demand. In early March, Russia did not extend the agreement with OPEC to limit oil production, after which both Russia and the leading OPEC country, Saudi Arabia, announced their intention to increase production. Prices reacted in failure – in one day they reached $ 31.29, the drop was 30%, however, they quickly returned to $ 36.
The current fall was caused by the US Federal Reserve System (FRS) – it decided to lower base rates to 0-0.25%. And shortly before the Fed also announced that it was moving to a policy of quantitative easing: it promised to buy bonds for an additional $ 700 billion, of which $ 500 billion were US Treasury bonds.
Fed actions are perceived by the market negatively, says the chief analyst “BCS Premiere“Anton Pokatovich:” Such a soft Fed gives the markets a clear signal that the destructive impact [коронавируса] to the global economy, and the US economy in particular, can be colossal. “
On April 1, an agreement to limit oil production by OPEC and non-OPEC countries ceases to exist and the threat of a price war can be realized, Pokatovich said: “Middle Eastern exporters have already begun to actively reduce prices and increase oil supplies to major buyers.” In the coming days, oil prices may fall below $ 30 per barrel, and in the next two weeks – stay in the range of $ 25–35.
Volatility will not calm down quickly, oil will be in a fever for about a month, the price may go up to $ 20 per barrel for a short time, says MKS Shein, the main investment strategist at BCS broker, but in May the market will stabilize at around $ 35 per barrel.
The fight for the buyer
The average cost of oil production in Russia is $ 3-5 per barrel, the CEO saidGazprom oil “Alexander Dyukov:” We have a low level of debt, so we have every reason to safely go through even a very long period of low prices. ” In February 2019, Deputy Energy Minister Pavel Sorokin said in an interview with Vedomosti that operating costs for the extraction of Russian oil are $ 3-10 per barrel, another $ 5-10 is capital expenditures, $ 5 is transportation, and everything else is taxes that may be adjusted.
Saudi Arabia’s state-owned oil company, Saudi Aramco, in November 2019 claimed that the cost of Russian oil is more than $ 40 per barrel, and that of Saudi oil is about $ 17, which is the lowest in the world.
Saudi Arabia is preparing to 3 times increase oil supplies to European countries at a price of $ 25 per barrel, Bloomberg reported. According to Reuters, Saudi Arabia is in talks with major European buyers of Russian oil, offering them cheaper raw materials.
“Saudi Aramco can withstand very low oil prices and can withstand them for a long time compared to other large companies in the industry.” March 16, 2020
Saudi Aramco intends to maintain oil supplies at a maximum of –12.3 million barrels per day throughout April, the general director of the company, Amin Nasser, said on March 16: it will be able to maintain maximum capacity at no additional cost for a year.
With oil prices below $ 30 per barrel, Russian oil companies ’profits will drop, but less than prices, said Artem Frolov, vice president and senior loan officer at Moody’s. According to him, lower production costs due to the weakening ruble and low transportation costs will allow Russian companies to compete with American and European manufacturers: “Middle Eastern competitors have operating costs comparable to Russian or even lower, so they can be dumped for some time time and have already announced that they will do it. “
Shock for the budget
The fall in oil prices to $ 25–30 per barrel over the course of 3–5 years was called by the Ministry of Finance the average price shock and estimated falling oil and gas revenues as 5–14% of GDP. The Bank of Russia, in its main directions of monetary policy, writes that a drop in oil prices to $ 25 per barrel in 2020 and their consolidation in the region of $ 30–35 in 2021–2022. will lead to worsening prospects for economic growth and an increase in capital outflows. The weakening of the ruble and the growth of exchange rate and inflation expectations in the risk scenario can lead to a short-term strong increase in annual inflation to 6.5-8% in 2020 with a return to the target 4% by mid-2021, the Central Bank wrote, and a noticeable decrease in external demand and other negative factors may cause the GDP to begin to decline – by 1.5–2.0% in 2020.
Of particular importance to the budget is the ruble price of a barrel, says the director of the Moscow oil and gas center Ey Denis Borisov. The current ruble price fell to the area of 2000 rubles. per barrel, it’s almost 900 rubles. less than the average cost of raw materials (in real terms) over the past 15 years, he calculated. But the federal budget is now ready for price shocks much better than in 2008 or in 2014 – there is a floating rate, reserves are formed, Borisov reassures.
Representatives of the Ministry of Energy, the Ministry of Finance, Rosneft, Lukoil, Gazprom Neft, Surgutneftegaz, Tatneft and Saudi Aramco did not respond to Vedomosti’s requests.