Russia outperforms OPEC+ deal in July

Market watchers warn oil price plunge in 2020

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MOSCOW
Russia outperformed its crude production quota within the OPEC+ agreement in July as it slashed output by 290,000 barrels per day compared with October 2018, Energy Minister Alexander Novak told reporters on Saturday, adding that Moscow also plans to meet the requirements stipulated by the deal in August. In July, Russia fulfilled its OPEC+ obligations.
In July, production decreased by 290,000 barrels per day compared with October 2018. In August 2019, Russia plans to maintain crude production at the levels stipulated by the OPEC+ (deal), he said. Russia agreed to cut crude production by 228,000 barrels per day in the first half of 2019 compared with October 2018 when it amounted to 11.421 mln barrels. It means the country exceeded its quota by 27.2%. The deal expires in late March 2020. All in all, OPEC+ countries agreed to reduce crude production by 1.2 mln barrels per day, of which 812,000 barrels accrue to OPEC countries and 383,000 barrels – to non-OPEC states.
Russia’s oil market may face the supply glut in 2020 despite the OPEC+ deal participants’ efforts to constrain the supply growth, the International Energy Agency warned in July. That may push the oil price down, consequently, curtailing revenues of the budgets of oil-producing countries, including Russia.
Experts interviewed by TASS share those apprehensions as the market remains volatile with persisting risks of the oil price drop next year, though the crude oil futures remaining within the range of $60-$70 per barrel is still the most probable scenario so far.
The global oil market currently looks unstable and uncertain, with the US shale production on the rise, while the demand lagging behind the supply even considering the outperforming rates of the OPEC+ deal implementation, Head of the Investment Department at BCS Broker Narek Avakyan said.
Yekaterina Grushevenko, an expert at the Skolkovo Energy Center shares the opinion. The situation with the oil supply glut will persist this year and next year. According to various estimates, it may total from 1 mln to 1.4 mln barrels per day despite the extension of the OPEC+ deal, she told TASS, adding that the US supply would rise due to increasing Permian production, as well as the continuing output growth in Brazil and a slight rise in Europe.
On the other hand, the geopolitical factor is keeping the market on tenterhooks, with any escalation in oil-producing states resulting in prices upsurge, Grushevenko explained. US-China trade wars will also affect the price volatility and supply growth in 2020, as they exacerbate negative market expectations regarding economic growth rates, she added.
The expert expects the Persian Gulf tensions to persist within a year and a half, which will contribute to a geopolitical premium for the crude price. However, a notable rise is unlikely, as the European demand will continue stagnating, same as the demand in Asian developed countries, which will not increase in the next two years, she said.
Finam Analyst Sergei Drozdov believes that the two main factors laying the groundwork for both upsurge and decrease in oil futures are tensions around Iran and the risks of global economic slowdown. Drozdov warns about the risks of the oil price plunge in 2020 to $50 per barrel, though the prices most probably will hovering between $60 and $71 per barrel.
A confluence of those factors (events evolving Iran and the world economic slowdown – TASS) will spur volatility on the oil market in the short run, with prices most likely staying within a short range of $60-71 per barrel by the end of 2019, though possibly falling to the $50-55 per barrel corridor in case of worsened sentiment across the global markets, he said.
Avakyan points to the threat of a potential mass-scale suspension of production or supplies of crude from the Middle East, which makes it hardly possible to project the situation on the global oil market. Considering the current environment, the compromise Brent price range both for consumers and producers is $60-65 per barrel so far. The recent oil leaps in both directions demonstrated that if the price dives deeper into that range producers come across profitability risks. Whereas if the price approaches $70 and above consumers get peeved, the US in the first place, he said.
Meanwhile, Grushevenko considers the $65-70 per barrel range the most realistic oil price outlook for 2020. Barring force majeure, the oil price fluctuations may be affected by failure to comply with the OPEC+ deal or tightening of quotas, the Persian Gulf escalation, and the talks dynamics between US and China, she suggested.

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