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The global oil market could return to balance in at least one year, all things being equal as-is, Russian Deputy Energy Minister Pavel Sorokin said at a forum in Russia on Friday.
When the first signs of rebalancing appear, we will see a recovery in oil prices, Sorokin said, noting that any timeline on rebalancing would depend on how long major economies remain in lockdown.
At $30-35 oil, U.S. oil production could drop by around 1.5 million barrels per day (bpd), the deputy energy minister said.
Sorokin discussed at length Russia’s reasons not to support deeper cuts at the OPEC+ meeting at the beginning of this month, which led to Saudi Arabia promising a flood of extra oil supply to the market.
Russia’s position was that the coronavirus outbreak was already hitting oil demand in February and was increasing the uncertainty about how far and how severe the pandemic would spread outside China, Sorokin said, as quoted by Russia’s Interfax news agency.
Therefore, OPEC’s proposal for cuts of between 600,000 bpd to 1.5 million bpd would have been “a drop in the ocean” in a market where oil demand is plunging, according to the Russian official. Considering that oil demand is now already down by 15 million bpd, and could reach 20 million bpd in the coming weeks, influencing the market with the cuts proposed by Saudi Arabia-led OPEC would have been impossible, Sorokin said.
According to Russia, the ‘fair price of oil’ currently would be $45-55 a barrel. Such a price range would discourage costly projects and, at the same time, allow demand to grow, Sorokin said.
Even if OPEC+ had approved a 1.5-million-bpd cut early this month, the price of oil now would have been up to $7 a barrel higher, the official noted. The coronavirus effect wiped around $25 a barrel from oil prices, he said.
As of April 1, when the OPEC+ pact expires, Russian oil firms will look at the economic feasibility when deciding whether to increase production, Sorokin said, and added, in a hint aimed at former partner Saudi Arabia, “Increased production or sweeping statements, attempts to influence the market were never our goal.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.