At the beginning of this week, I wrote about Russia's reasons for abandoning the OPEC deal in an article titled "Why Russia Killed The OPEC Deal". It did not take long for Russia to explain its reasons in an exclusive interview for Reuters. Those investors who are seriously interested in the oil space should definitely read the whole Reuters material (it is short), while I'll focus on the main points and provide my commentary. We'll also look at what this means for the various segments of the oil industry.
The interview was given by Russia's deputy energy minister Pavel Sorokin. It is very important to keep in mind that such high-level officials are not in the business of providing market analysis and forecasts. Instead, they are providing their signals to the market.
Without further ado, let's look at the key points:
- Russia believes that it is impossible to combat a situation when the demand is constantly falling, and the bottom is unclear.
- Moscow's initial position was to extend the agreement without additional cuts for the second quarter. Also, Moscow did not exclude the possibility of extending the OPEC deal even further.
- For Russia, the new cuts would have meant cuts of additional 300,000 bbl/day, bringing the total cuts to 600,000 bbl/day, which is technologically challenging.
- Sorokin stated that oil prices in the range of $45-55 per barrel are fair and will allow to invest in projects and keep supply coming.
- He believes that oil prices will increase to $40-45 per barrel in the second half of 2020 and continue their upside to $45-50 in 2021.
- In a Russian-language version of the interview (you can run it through Google translate), he added that while the ruble-denominated price of 3,000 per barrel is very comfortable, prices in the range of 2,100-2,500 rubles per barrel are satisfactory. I don't know why the authors of the interview decided to omit this information from the English version as I believe it also sends an important signal.
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