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Russia’s Central Bank Warns That Oil Could Slide To $25

Russia’s central bank has warned that crude oil prices could slump to $25 in its risk scenario for monetary policy over the next three years, TASS reports.

That scenario, which is the bank’s worst case for 2021 to 2023, also includes heightened geopolitical tensions, a second wave of coronavirus infections, and other economic shocks. Debt problems and trade tensions are also included in that scenario.

The update from the bank comes amid falling oil prices, pressured by changing outlooks on demand as the pick-up that started in May and continued through July is showing signs of a slow-down, raising doubts about its sustainability.

Among the latest of worrisome signs, Saudi Arabia said it would cut its official selling prices for crude in a move hardly anyone expected given the Kingdom’s upbeat stance on oil demand. Separately, reports of rising oil and fuel inventories in floating storage pressured benchmarks as commodity traders chartered tankers to store fuel and crude offshore.

The news of rising floating storage is particularly worrisome because it means that onshore storage space is still full, despite a moderate increase in fuel demand after most lockdowns eased in May.

In further bad news, Bloomberg reported that Chinese oil imports continued to fall in August, after they fell in July from a record-high in June. Even though a decline from the record-high June import rate could be expected, the information did not help an already sensitive market. Further declines are on the way, Bloomberg noted, as the state import quotas issued to independent refiners fill up.

With Covid-19 rising in many large oil markets, including India and the United States, uncertainty about the future of oil’s fundamentals remains unusually high. Even so, in the base-case scenario of the Russian central bank, prices are seen recovering to about $50 a barrel by the end of 2022. The institution recognized the hesitancy of global economic recovery in this scenario as well, noting that it remained doubtful whether things would return to pre-pandemic normalcy.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on September 10 2020 said:
    This isn’t a realistic scenario in any way because it is based on a combination of many crises like heightened geopolitical tensions, a resurgence of COVID-19 pandemic, trade war and debt problems all happening at the same time.. The world is then lucky that oil prices could slide to only $25 and not much lower according to that scenario.

    In normal circumstances, crises of that type don’t all happen at one go . That is why it is easy to ignore Russia’s Central Bank scenario as unrealistic.

    It is natural for a major oil producer like Saudi Arabia to reduce the price of one of its crude types if it is aiming either to defend its market share in one country or trying to gain market share. This is different from flooding the global oil market as Saudi Arabia did in March and April this year. Saudi Arabia won’t repeat the experience having paid a heavy price for it.

    China is still leading global oil demand by its roaring crude oil imports. If its imports have slowed a bit in August, it is because it is waiting to offload the numerous tankers waiting in Chinese ports and also determine available storage capacity before re-embarking on its record-breaking imports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Carlos Blanco on September 10 2020 said:
    This is coming from the country that just claimed they have an effective Covid vaccine so the outlook indeed is not looking good. Perhaps the worrying sign is the decline of China's oil import. China had a crucial role to stabilize the world economy during the great recession in 2008 but it seems they will not have the same power this time. After all, China economy still depends on export as well. The fact that the rest of the world is still struggling with the pandemic is not really a good news for China.

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