Page 11 - RusRPTFeb21

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2.2 ​ ​Oil prices will remain unpredictable in 2021, govt to remain cautious
All of the baseline forecasts suggest that oil prices will rise slowly in the coming years, following an increase in demand for fuel as the global economy recovers. However, this scenario isn’t a sure thing.
Today, the relative stability in the oil market is provided by a record reduction in supply. And this isn’t so much a natural process as the result of an agreement ​reached​ by the world’s largest fuel exporters — the OPEC countries, led by Saudi Arabia, along with Russia and other independent suppliers — in the spring of 2020, reports Meduza.
The deal helped bring oil prices back up: during the peak of the crisis in March 2020, a barrel of Urals oil cost $17, but by the end of December prices had risen to more than $50 per barrel. This is above the $42 mark that served as the basis for Russia’s budget, though still less than before the pandemic when oil prices exceeded $60 per barrel. Deputy Prime Minister Alexander Novak recently ​said​ that $45–$55 is an ideal price for Russia.
The rise in prices at the end of the year didn’t make the Russian budget deficit-free: the fact is that under the terms of the OPEC+ deal, Russia is now selling less oil than before the pandemic. The country was producing 11.3mn barrels daily in March, but less than 9mn per day in July. And according to the latest version of the OPEC+ deal, production won’t recover in full in early 2021 either.
The OPEC+ deal was supposed to end at the beginning of 2021, but the coronavirus epidemic hasn’t ended, which doesn’t allow for the quick resumption of full-fledged production. The agreement has been extended several times, so that its main participants increase production gradually. At the same time, they’re all complaining that the smaller players are violating the agreement constantly and supplying more oil than they promised, making the agreement’s renewal more difficult each time.
New waves of the pandemic aren’t allowing demand to recover either, which limits the growth of oil prices. Everyone understands that the OPEC+ deal can’t last forever: the parties are already suffering great losses not so much because of the fall in prices, but because they’ve been forced to sell much less oil than a year ago. So the entire structure of the agreement could fall apart at any moment.
A possible rise in oil prices after the end of the pandemic is more likely a destabilizing factor. In other words, you can’t predict the balance of supply and demand — and hence, the price of oil — in the years to come. For Russia, low oil prices mean a fall in the ruble’s value, rising inflation, and a budget deficit.
11 ​RUSSIA Country Report​ February 2021 ​ ​www.intellinews.com