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The Russian energy ministry expects the average Urals price to be $35/b in 2020, minister Alexander Novak said in an interview with German daily Handelsblatt published June 20.
Russia’s 2020 budget is based on an oil price of $42/b, officials said previously. Novak said he currently only expects oil services providers, who have been hit hard by Russia’s significant oil production cut under the OPEC+ agreement, to require state support.
“We have very flexible taxation for oil producers, dependent on the oil price,” the report quoted Novak as saying. “Our oil companies can continue to produce even when the oil price is low, thanks to reserves and then low taxes.”
He added that large Russian oil and gas companies will continue investment programs, with some cuts of up to 20%, but no fundamental changes.
Novak added that he does not expect oil demand to return to pre-crisis levels in the near term.
“Certainly not this year,” Novak said. “We hope that it will happen in 2021. But maybe it will take two or three years. Because people will fly less, drive less, travel less and do more online. The economy will grow again, but the demand for oil from transport will remain lower.”
Russia does not currently see a need to deepen oil production cuts under the OPEC+ agreement, but the group will continue to discuss the situation monthly, Novak said.
“In July the agreement will result in two million fewer barrels of oil on the market than originally planned,” Novak said. “Then we’ll see. There is a lot that is unclear: consumer demand, and whether there will be a second wave of coronavirus that many expect. That would again disrupt markets considerably.”
Gas market bankruptcies likely
Novak also discussed volatility in the gas market as a result of the coronavirus pandemic, recent warm winters and increasing LNG capacity.
“I hope that the worst is behind us on the gas market,” he said in the interview. “Although it is much more difficult here because there is no regulatory body like OPEC in the gas sector, and coordination is much more difficult. This is why the gas market is more chaotic and bankruptcies will occur.”
Novak said that he does not expect gas prices to go negative for a sustained period.
“This is hardly possible, at most it may happen on small local markets, like in the US for oil, where at times it could not be transported or stored,” Novak said. “On the gas market there was a very short time on a European gas hub, but these are very short-term slumps. I rule out a longer, system-relevant negative gas price.”
