Page 20 - RusRPTApr20

Massive oil oversupply in the works
Fitch estimates the crude oil market will be “massively oversupplied in 2020,” because of waning demand due to the coronavirus outbreak and growing production following the OPEC+ failure to agree on output cuts.
“Saudi Arabia intends to increase production from April and utilise its significant spare capacity. This could keep the Brent price below $40/bbl for the rest of this year, as the magnitude of oversupply in 2020 in various scenarios is likely to be much larger than the maximum of 1mn barrels a day (mmbpd) seen in the past decade,” Fitch said.
Fitch is more upbeat about the medium term and expects the market to rebalance over the next two or three years due to a recovery in demand once the coronavirus outbreak is contained, as well as the impact on the US shale production which will slow at low prices. At the same time the agency suggested the OPEC countries will eventually cut production again to boost prices within the foreseeable future as their economies will come under pressure if prices stay too low for too long.
Both Saudi Arabia and Russia, the key parties to OPEC+, have fiscal break- even Brent prices above current market prices, at $91/bbl and $53/bbl, respectively, according to Fitch.
“We expect US shale production to return to growth when oil prices stabilise, as happened in 2016-2017, which would limit the extent of the price recovery,” says Fitch.
Gas glut, but prices to recover slowly
Natural gas markets are also vastly oversupplied, says Fitch. Europea in particular faces a gas glut following the unusually warm winter and the large supplies of gas in storage as a result of a gas war between Russia’s Gazprom and Ukraine’s Naftogaz over the renewal of the transit deal that was averted at the last minute in December. And thanks to the warm winter the gas glut extends beyond Europe.
20 RUSSIA Country Report April 2020 www.intellinews.com