Price war on the oil market – russia is rowing back
First Russia is breaking the agreement with OPEC on oil production volumes, now it apparently wants to return to the negotiating table. Because his economy is clearly feeling the price war on the oil market.
With a slight delay, the Russian market will feel the consequences of the broken negotiations with the OPEC oil cartel. On Monday, oil prices on the international market had plummeted by up to 30 percent – the sharpest drop in prices since the Gulf War in 1991. However, due to a holiday, there was no sign of this on the Russian stock exchange.
But on Tuesday morning, the Russian stock market also felt the effects of the crash. The leading index RTSI temporarily slipped by more than 16 percent. The shares of the Russian energy companies Rosneft and Lukoil fell by up to 13.6 percent.
The ruble depreciated massively against the US dollar and the euro. While the exchange rate per euro was 68 rubles in January, it was 80 rubles on Tuesday.
Russia is ready to negotiate
In the face of this economic turmoil, the Russian government abandoned its previously rigorously opposed course towards a compromise with OPEC. "The doors are not closed", stressed Russia’s energy minister Alexander Nowak on the state television station Rossija 24. His government is ready to continue cooperation with OPEC and the producing countries that are part of OPEC +. Nowak assumed that it could take months for the oil price to recover after the crash.
It was Russia that over the weekend terminated the three-year agreement with OPEC on limited production volumes.
The extraction and export of oil is one of Russia’s major sources of income. The Russian budget is largely dependent on this income and thus also on a stable oil price. The drop in prices on the oil market threatens to tear holes in the planned budget.
In view of this risk, the Russian Ministry of Finance tried to reassure its own population. Russia has enough oil reserves for up to ten years – and can meet its social obligations, even with a lower oil price. Russia is also armed for a price war with Saudi Arabia.
Saudi Arabia wants to increase oil production
Because the main competitor in oil exports is putting a lot of pressure on: Despite falling prices, the state-owned oil company Saudi Aramco has announced that it intends to increase its oil production from April. Production should be ramped up to 12.3 million barrels a day. In February it was 9.7 million barrels.
The Russian energy minister Nowak replied immediately: Russia could also increase its own oil production immediately by up to 500,000 barrels a day. Russia would push its production up to a record level of 11.8 million barrels.
On the other hand, Kremlin spokesman Dmitri Peskov gave a milder tone. Russia is ready for new negotiations with Saudi Arabia and a compromise on oil production volumes cannot be ruled out.
The Saudi energy minister, Prince Abdulasis bin Salman, said on state television that his government thought meetings of oil-exporting countries in May and June were unnecessary.