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Exclusive: Russia ready for a fall in oil prices, “sooner or later” it would happen

US, WASHINGTON (NEWS OBSERVATORY) — Russia was ready for a drop in oil prices after withdrawing from the OPEC + deal limiting production, since it understood that “sooner or later” this would have happened anyway, Deputy Energy Minister Pavel Sorokin said in an interview with Reuters.

Deputy Minister of Energy of the Russian Federation Pavel Sorokin
File Reuters

“Now we see the market situation as predictable, although unpleasant, but working,” Sorokin said.

Pavel Sorokin was one of those who helped to realize the OPEC + deal more than three years ago.

Last week, members of the OPEC + pact, which account for about 50 percent of global oil production, were unable to agree to extend the deal, as a result of which oil quotes collapsed to a 4-year low, dragging the ruble and the stock market with them.

Energy Minister Alexander Novak began preparing the market for Russia’s exit from the deal to reduce production at the end of last year.

SAVE EQUILIBRIUM

Deputy Minister Sorokin expects world oil prices to rise to $ 40-45 per barrel in the second half of 2020 and continue to rise in 2021 to $ 45-50 per barrel, unless there are unforeseen situations.

In his opinion, the price level of $ 45-55 per barrel is equilibrium and fair, it will allow investing in projects and ensuring replenishment of production. Production costs in Russia, including operating and capital costs, are at the level of $ 9-20 per barrel, depending on the project.

Russian oil producers feel quite tolerant at the current price of a barrel of oil of 2,100-2,500 rubles, Sorokin said.

“The price in the region of 3,000 rubles per barrel allows us to feel much more at ease, but at the current price, we feel quite confident,” he said.

QUESTIONABLE

The outbreak of the coronavirus epidemic in China, which has spread to other countries, has called into question the growth of world oil demand in 2020, but OPEC’s uncompromising position to cut global production from April by another 1.5 million barrels per day, according to Russia, excess. Moscow proposed the extension of the current agreement for the second quarter and did not exclude its further extension.

“We cannot deal with the situation of falling demand when the bottom is not obvious and unclear where it is located,” Sorokin said.

According to Sorokin, the global growth in oil demand, taking into account China in 2020, may turn out to be zero, while earlier it was forecasted to increase by 900,000 – 1 million barrels per day. It all depends on how strong the psychological effect caused by the epidemic will be, Sorokin said.

VICIOUS CIRCLE

If a scenario had been realized with a reduction in world oil production by another 1.5 million barrels per day since April, as OPEC suggested, Russia would have to cut another 300,000 barrels per day. The total reduction for Russia would then be 600,000 barrels per day, which is technologically difficult, Sorokin said.

In addition, every reduction in production is a risk, he said.

“It is very easy to find yourself in a vicious circle situation, when, cutting off once, in two weeks you get an even bigger and worse reaction, because at first the oil bounces a little and then falls again because demand continues to fall,” Sorokin said.

The current OPEC + deal is valid until the end of March and involves a decrease in global production of raw materials by 1.7 million barrels per day, excluding voluntary reduction by Saudi Arabia by 400,000 barrels per day.

Sorokin said that this year Russia will be able to additionally extract another 10 million tons of oil if no additional decisions are made with OPEC. Last year, the Russian Federation produced 556 million tons.

Earlier, Minister Novak said that the Russian Federation is able to increase oil production by 200,000-300,000 barrels per day in the short term, and up to 500,000 barrels per day for several months. Sorokin said that Russia has no bottlenecks to place an additional 15-25 million tons of oil on the world market.

Novak said earlier that the Russian Federation does not exclude joint measures with OPEC to stabilize the global oil market. Sorokin also leaves the door ajar for partners and says that the next meeting with the cartel depends on their desire to discuss the situation.

“The market is not quite straightforward, situations can always arise that require some kind of joint action (with OPEC),” Sorokin said.

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