The situation in the oil market develops rapidly. In early March, Russia refused to renew the OPEC+ deal on the terms proposed by Saudi Arabia - but joined it after a month on terms five times worse. Demand for oil on the global market began to collapse in March because of the coronavirus, and Saudi Arabia essentially declared a price war on Russia.
Saudi oil came to Europe at a discount, which completely destroyed the pricing mechanisms for Urals crude. The price of physical supply to Europe plunged below 10 dollars per barrel. As a result, the confidence that Russia is ready to withdraw from the deal, to wage the price war, that the competition will not be endured by the Saudis and American shale oil producers was deflated literally within a month.
So a new OPEC+ deal was made which was supposed to remove almost 10 million barrels a day from the market. Yet it did not really increase the prices. Furthermore, after the prices collapsed in the US market, the price of the physical supply of Russian oil again returned to a level below 10 dollars per barrel.
Russian oil had never been so cheap during the period of Vladimir Putin’s rule. Meanwhile, it is with horror that Russian oil companies are waiting for May: on the one hand, they have to cut production by 1.8-2 million barrels a day, which is an unprecedented voluntary limitation. On the other hand, this will not restore the global prices even to the early March level.
The fall in global demand will be huge, perhaps even over 30%, as long as the coronavirus pandemic is not stopped. Oil has lost price volatility: the collapse in prices cannot stimulate growth in its consumption.
But the most interesting developments may begin later when demand starts gradually recovering in summer and autumn. Having temporarily abandoned a huge number of old wells, the Russian oil industry will not be able to restore production quickly and inexpensively. This may make a return to the European markets problematic. Competition in the Chinese market will become seriously more intense too.
This is indeed a moment of truth for the industry.
In the new NESF report, you will find detailed answers to the following questions:
- The results of the participation in the previous OPEC+ deal for Russian vertically integrated oil companies
- How their production profile and export structure have changed
- Key beneficiaries and losers
- Russian export crudes: their weaknesses and strengths during a war for markets
- To what extent European and Asian refineries are interested in Russian crudes
- The basket of petroleum products derived from Russian oil and key rivals in different markets
- The change of the oil production structure in Russia in favour of lighter crudes and the consequences thereof in view of dramatically intensified global competition
- Who is driving Russian oil away from Europe and Asia?
- War for markets with US shale oil and Saudi Arabian oil
- The export strategies of Russia’s competitors
- The weaknesses and strengths of the oil industry in Saudi Arabia and the US
- How Russia’s key competitors survive the price collapse?
- Who of the “big three” has more “fat” to burn?
- The structure of the new OPEC+ deal and its possible influence on the market
- The outlook for Russia complying and the implications for the Russian oil industry
- The bureaucratic mechanisms for Russia keeping the new deal
- How the reduction will be managed and controlled
- The deal as a most serious test for the mechanism of government control of the industry
- Erosion of the strategic planning system in the oil industry
- Why Russia withdrew from the deal - and joined it again later?
- The oil market after the coronavirus
- What awaits the Russian oil sector after demand recovery?
- Can the losses be recouped?
- Russia’s role in the first OPEC+ deal. Russian oil companies: the winners and the losers
- Strategic Prospects for Russian Oil Export
- Key Markets for Main Middle Eastern Oil Exporters
- Strategy of Saudi Arabia. Risks to Russia
- Present and Future of Independent American Shale Oil Producers
- Is There Really No Demand for Russian Oil on the Market? Outlook for Russian Export
- New OPEC+ Agreement: April Triumph or ‘Humiliating Peace’?
- Difficulties of implementation of OPEC+ Deal in Russia
- Appendix No 1: Share of Export in Total Production*for OPEC & Other Deal Countries, %
- Appendix No 2: Profit/Loss from Storing Oil in Tankers under Circumstancesof Contango in March 2020
- Appendix No 3: Abbreviations
- Gazprom Neft
- Goldman Sachs
- Marathon Oil
- Noble Energy
- Pioneer and Parsley
- Rosneft Trading SA
- Saudi Aramco
- Unipec, Sinopec
- Whiting Petroleum
All materials and sources used for issuing each report are thoroughly verified and analyzed by experts. The information is based on industry statistics, data of oil and gas companies, information of federal and regional mass-media, materials of conferences and round tables.
The analyst has pored on the following goals:
- Analyses of oil & gas and power industries, political risks within the energy sector, geopolitical problems in connection with the production of hydrocarbons and their supply to the global market, strategic development of companies, new production and transportation projects
- Consulting on the influence of political factors on the oil & gas business, decision-making within Russian energy companies and government bodies dealing with the energy industry
- Development of energy business concepts in Russia
- PR services for oil & gas corporations
- Analysis of images and reputations of energy corporations