Oil prices, defined as an average of Brent, West Texas Intermediate, and Dubai prices, are expected to rise to an average of $44 per barrel next year and $50 a barrel in 2022, up from expected $41 in 2020, the World Bank said on Wednesday in its latest report on Russia.
According to the World Bank, the COVID-19 pandemic will continue to impact global oil demand, with consumption still below pre-pandemic levels next year. Oil consumption is expected to remain around 5 percent lower than in 2019 by the end of 2021, the World Bank said.
The outlook for oil production in Russia, whose energy exports are key to budget revenues, will depend on the duration and depth of the OPEC+ oil production cuts, the World Bank said.
While a better-than-expected economic rebound in the third quarter of 2020 prompted the World Bank to revise up its economic outlook on Russia to a 4.0-percent contraction compared to a 5-percent decline expected in September, the bank warned that Russia’s economy is losing momentum with the resurgence of COVID-19 in the fourth quarter. Related: Goldman Turns Bullish On Oil: Sees $65 Brent In 2021
Russia’s federal budget registered a deficit in the first ten months of 2020, compared to a surplus for the same period of 2019, due to higher spending to contain the pandemic and the need to support the economy in the face of lower oil and gas revenues, the World Bank said. Russia’s oil and gas revenues slumped by 35.2 percent year over year between January and October 2020, on the back of plunging oil prices and reduced oil production because of the OPEC+ pact.
“A weaker ruble could not fully compensate for the fall in oil prices and the drop in economic activity,” the World Bank said.
Vaccinations in 2021 could put the economy on a path to sustained recovery and to a decline in poverty, but risks are tilted to the downside, according to the bank.
The oil price crash that Russia helped create, along with the coronavirus-driven global recession, will result in Russia’s economy shrinking this year by the most in 11 years, the World Bank said in its previous economic report on Russia in July.
By Tsvetana Paraskova for Oilprice.com
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On that basis and taking account of the invigoration that the start of the of vaccination in different parts of the world and the promise of the return of the global economy to normal economic activity has triggered would give an average Brent crude price of $65-$70 in 2021.
Brent crude price could hit $60 in the first quarter of 2021 and $70-$80 in the third quarter. It could even test $100 by 2024. Moreover, global oil demand could be projected to match if not exceed the 2019 level in 2021.
Russia’s economy is expected to grow at 3.0% in 20nd 2.5% in 2022. Furthermore, a weaker ruble does to a great extent compensate for the fall in oil prices. The reason is that Russian oil companies earn dollars and other hard currencies for their exports but pay for their operations in ruble. The lower the ruble slides against the US dollar, the lower the production costs of Russian oil companies. That is why the lifting cost per barrel of Russia’s largest oil producer, Rosneft, is now lower than that of Saudi Aramco. Rosneft’s costs per barrel have fallen from $3.1 to $2.5 compared to a $2.80 for Saudi Aramco.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London