Russia’s economic position stronger compared to its OPEC+ allies
Moscow is expected to push for a further increase in its quota in 2021
Although weak crude prices weigh heavily on all oil-dependent economies, Russia seems to feel more comfortable than other oil-producing countries. Current prices are higher than the state budget envisages, so the Kremlin will apparently stick to boosting production.
Russia’s strong economic position among OPEC+ members underpins its negotiating power, considers S&P Global Platts adding that analysts expect the country to remain part of the alliance, which has become an essential element of Russia’s foreign strategy. In January, OPEC+ agreed to increase Moscow’s output quota for February and March by 65,000 bpd per month, while most other members didn’t get any concessions. Moreover, the alliance’s kingpin Saudi Arabia announced voluntary cuts of 1 million bpd.
After the January meeting, Russian Deputy Prime Minister Alexander Novak said that the outlook would hopefully become even more positive in two months’ time, so there would be an option to increase production further. According to analysts of VTB Capital, Russia’s quota may rise by some 80,000 bpd in April-June, as the Kremlin aims to boost production back. However, the current uncertainty over demand makes it hard to predict the results of the group’s next full ministerial meeting on 4 March.
Meanwhile, Russia is better able to deal with oil shocks than many of its OPEC+ allies, as the country prices its crude in the US dollar and sticks to flexible exchange rate of the national currency. When oil prices drop, the ruble tends to fall against the dollar allowing Russian producers, whose costs are primarily in rubles, to minimise the impact of low prices on their operations. The fiscal rule introduced in 2017 has also helped to reduce revenue volatility and soften the impact of oil price fluctuations on the country’s economy and budget.
This year, oil prices have been above the level included in the Russian state budget so far. The budget approved at the end of 2020 envisages Urals prices to average $45,3 per barrel in 2021, $46,6 per barrel in 2022 and $47,5 per barrel in 2023. The Kremlin is also trying to reduce the state budget’s reliance on oil and gas. Last year, President Vladimir Putin said that hydrocarbons revenues would account for one-third of all budget revenues in 2021, compared to half in 2011.
In a positive demand scenario, all these factors are likely to underpin a bid to secure further production increases later in 2021, says S&P Global Platts. In the case of a more negative scenario and further cuts, Russia is likely to insist on smaller restrictions and shorter durations. Anyway, the country is likely to remain in a comparatively strong economic position despite negative demand forecasts.