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With oil plummeting near an 18-year low amid unprecedented supply and demand shocks, Russia finally admitted: crude is too cheap.
“Of course it’s a low price, we would like to see it higher,” Kremlin spokesman Dmitry Peskov said on a conference call, signaling for the first time that the country’s tolerance of low prices may be wearing thin. Yet he stopped short of reaching out to partners in the OPEC+ alliance as the brinkmanship between Russia and Saudi Arabia persists.
Crude in New York sank below $25 a barrel on Wednesday as the Saudis vowed to keep production at a record. While policy makers around the world have enacted sweeping measures to buttress their economies against the effects of the coronavirus crisis, the biggest producers in OPEC+ continue to pull oil prices lower by pumping flat out, with no sign of a thaw in relations.
“We’re very closely monitoring the situation on global oil markets, analyzing the situation, trying to make forecasts for the near- and mid-term future,” Peskov said. Russia will form its position on any potential new cooperation with OPEC depending on the outcome of the analysis, he said.
The Organization of Petroleum Exporting Countries and its allies failed to agree on deepening production cuts earlier this month, with the collapse of talks — and the subsequent battle for market share — sending the market into a tailspin.
Iraq, OPEC’s second-largest producer, on Tuesday urged the group and its partners to hold fresh ministerial talks to address the crisis. Yet Saudi Arabia on Wednesday said it would pump about 12.3 million barrels a day over the coming months, while Russia’s oil companies have insisted their low production costs would allow them to keep pumping even if prices move toward $10 a barrel.
Russia’s national coffers may prove to be less resilient. Finance Minister Anton Siluanov warned on Wednesday that the state budget, which gets some 40% of its revenues from the oil and gas industry, will turn to a deficit this year amid low crude prices. The 2020 budget is based on an average Urals price of $42.45 a barrel.
As a result of the price war and the global demand slowdown, Russia’s revenues from oil and gas are expected to be almost 3 trillion rubles ($38.4 billion) lower than planned, according to Siluanov.
