Russia is ready to sell crude oil at pretty much any price, but only to friendly countries, Energy Minister Nikolay Shulginov told Russian news agency Interfax.
Commenting on oil price forecasts, Shulginov said that these will need to be revised soon in light of the changes in the geopolitical and economic situation. He added that while a price range of between $80 and $150 per barrel of crude was possible, Russia was ready to sell its oil at any price range because its priority was to keep its oil industry going.
"A price range of $80 to $150 per barrel is generally possible," Shulginov told Interfax, "but it is not our job to play guesswork with prices. Our job is to ensure the continue operation of the oil industry. We are ready to sell friendly countries oil and oil products at any price range."
Separately, commenting on news about foreign companies' exit from the Russian energy industry, Shulginov said this exit is, for now, hypothetical. These companies, he said, would first need to find a buyer for their Russian business.
The minister's statement suggests sanctions, although not directly targeting Russia's oil industry, are beginning to bite. With lower sales due to the sanctions, Russia may soon need to start shutting down wells because it is running out of storage space, and new facilities are being built with haste.
The limited storage capacity has been a problem for a while but has only come into the spotlight now that Russian oil cargos are being shunned by Western buyers. According to the International Energy Agency, Western sanctions could reduce Russian exports by some 3 million barrels daily this quarter.
This would mean a 3-million-bpd shortfall in global supply with no immediate replacement. Also, if fuel exports are included, the shortfall could become even greater, as OPEC's secretary-general warned the EU this week during talks in Vienna.
"We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions," Mohammed Barkindo said. "Considering the current demand outlook, it would be nearly impossible to replace a loss in volumes of this magnitude."
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Sands Financing From Canadian Banks Doubles
- India’s Russian Dealings Have Left Biden’s Geopolitical Oil Strategy In Tatters
- Tight Oil Markets Are Sending Fuel Margins Through The Roof
He didn’t mean that Russia is facing difficulties selling its oil as the author interpreted his statement. He meant that friendly countries like China, India and other buyers who stood by Russia will get special discounted prices from Russia. The Russian minister also meant that Russian breakeven price is so low that it can sell its oil at any range even below a Brent crude price of $40 a barrel without adversely affecting its budget. And if the global oil market slows down, Russia like other major oil producers may find it preferable to sell its oil at any price rather be forced to shut wells. Once wells are shut, it takes time to restart production.
The claim that customers are shunning Russian oil exports is a plain lie. If this was true, Brent crude would have jumped to $140-$150 a barrel by now. Oil prices don’t lie. Moreover, one can’t remove 8.0 million barrels a day (mbd) of Russian crude oil and oil products from the market without plunging the world in the worst energy crisis in its history. Russian oil exports are irreplaceable. Moreover, the IEA’s claim that Western sanctions could reduce Russian exports by some 3 mbd this quarter is a plain lie like most of its unsubstantiated claims. If they haven’t done so by now, they will never ever succeed.
As for the announced exodus of BP, Shell and now Vitol from Russia, they will be the ultimate losers not Russia. They won’t only sustain huge losses but they will also be unable to sell their stakes to non-Russian entities. In effect, their assets will be bought by both the Russian government and Russian oil and gas giants on the cheap.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London