In 2021, the global oil market will return to its pre-crisis state, and the demand for oil will increase by 5-6 million barrels per day. This hope was expressed on Monday, December 28, on the Russia 24 TV channel by Deputy Prime Minister Alexander Novak, pointing to the emergence of coronavirus vaccines as a positive recovery trend.
“Compared to the pre-crisis period, demand has slightly increased. Although, in general, the drop in oil prices was much larger, and most of it has already recovered. Next year, we expect about 5-6 million barrels (per day) of additional demand growth. Although, the situation may be different, ”he added, noting that there are still many uncertainties in the world that affect prices, so the situation needs to be monitored. As one such example, the former head of the Ministry of Energy cited the uncertainty over the US elections, which provoked market instability.
Some financial analysts believe that in 2021 the situation in the oil markets, on the contrary, may deteriorate significantly. So, the leading analyst at QBF Oleg Bogdanov suggested that in the first quarter of the coming year risks will grow, asset markets will go down, as a result of which prices for “black gold” may very quickly fall to $ 30-35 per barrel.
Against this background, “SP” asked the experts how well-grounded the optimism of Alexander Novak.
– Let’s start with the fact that the drop in global oil demand was much more than 5-6 million barrels per day, – shared his vision of the situation with JV Associate Professor, Department of Financial Markets and Financial Engineering, RANEPA Sergey Khestanov… – According to data from one and a half weeks ago, an estimate of 8.9 million barrels per day looks more realistic. By now, these numbers, of course, have changed, but even if they have decreased, it is in any case more than 5-6 million barrels per day.
In addition, all forecasts of a recovery in oil prices are based on the thesis that in the foreseeable future there will be a recovery in economic activity and the lifting of coronavirus restrictions. But so far this tendency has not manifested itself in any way. Most large economies, of course, are struggling with the disease, but one should not expect any relief in the near future. Vaccination has just begun, its rates are still quite low.
Therefore, I personally would rate the statement of Mr. Novak as a kind of optimistic forecast. If you fantasize and imagine that vaccines work great, that they were produced quickly and in large quantities, that people went together to get vaccinated against coronavirus, then if these conditions are met, the picture drawn by him may well come true. Only now life teaches us that in practice what actually happens is a kind of compromise between optimistic and pessimistic scenarios. So the truth is somewhere in between.
“SP”: – That is, the current lockdowns of European countries will not pass without a trace for the oil market?
– Naturally, there simply cannot be other options. Unfortunately, any negativity translates into tougher restrictions, which, in turn, provoke a drop in oil demand, because oil is, first of all, transport in the broad sense of the word. In different years, its share accounted for 52-57% of oil consumption, therefore, the limitation of mobility inevitably leads to a drop in demand.
“SP”: – Against this background, OPEC can make another appeal to exporting countries to cut oil production in order to keep the demand and oil prices from falling?
– In theory, of course, it can. But the main problem of OPEC, and a very old one, is that inside it there is strong tension between the member countries. What are the only contradictions between Saudi Arabia and Iran. That is why it is difficult to reach a consensus within OPEC. And the March nightmare with oil prices, when they dropped to $ 13 per barrel at the moment, is a clear story of what happens when, as they say, there is no agreement among comrades.
OPEC has both supporters of the next cuts in oil production and opponents of this. But since its current price, although not high, is quite acceptable for the majority of OPEC members, it is much more prudent not to make any drastic moves in this regard, so as not to violate the current consensus.
“SP”: – Taking into account the forecasts of experts about the fall in oil prices in 2021, can we say that this is not critical for the Russian economy? Moreover, during his last press conference, Russian President Vladimir Putin stated that our country has begun to get off the “oil needle”, and its budget is already 70% formed not from oil and gas revenues.
– Not certainly in that way. Indeed, we have a tendency to reduce the contribution of oil to the budget revenues. It is a fact. However, the existence of this tendency in itself does not mean that we are getting off the “oil needle”. Recently, the dependence of our budget on the conjuncture of the world oil markets, of course, has been decreasing, including due to the budget rule, but to completely get rid of oil dependence is a long-term task, the implementation of which will require, I think, at least a couple of five-year plans.
SP: – That is, if the oil market collapses again in 2021, then Russia will face extremely difficult times?
– Here, too, not everything is so simple. Russia has accumulated large amounts of reserves. Accordingly, if you start spending some part of them to support the economy, then this will allow you to have quite good economic indicators against the backdrop of a bad oil situation.
But there is one problem – our reserves, of course, are significant, but they are still finite. And here the top management faces a serious choice, because the waste of reserves means their decrease. And we do not know what lies ahead. What if the coronavirus mutates? What if the vaccines don’t work? What if something else out of the ordinary will happen, capable of causing such a negative, in comparison with which what is happening now will look optimistic? What should we do then if we have already spent our reserves?
Therefore, if you observe how our reserves are used, you will notice that this is done with extreme caution. Therefore, if the demand for oil does not recover, then the scenarios may be different, and they will largely depend on our decisions. If we, for example, come to the conclusion that there is no need to spend reserves, then the further development of our economy will directly correlate with the oil market – it will improve if everything is positive there, and worsen if it is the other way around.
Experience shows that in the acute phases of the crisis we spend some reserves. During the crisis, for example, in 2008, we spent a third of our reserves, during the crisis in 2015 – roughly also almost a third. This is a significant waste. Now we spend it insignificantly, even increasing at the moment. So everything here will depend, I repeat, not only on the oil situation, but also on our decisions. Which today, by the way, may be the same, but, say, tomorrow they may be changed.
So there is no very simple and unambiguous answer to this question.