'We expect that the oil price in the third quarter of the year will be $67-72 per barrel'

Russia became the second in terms of oil supplies to the United States. How exports have increased and decreased and what the world market is waiting for — read in experts' forecasts

Russian oil, mainly mazut, is conquering the US market — our country has become the 2nd after Canada in terms of black gold supplies to America. Despite the trend of a decline in Russian oil exports as a whole, we have received more funds for these reduced volumes than in the first half of 2020. At the same time, Russia has more than doubled its exports to the United States, but it has decreased for its largest strategic partner, China. What are the reasons for the overflow and what are the future prospects of the market — read more in the material of Realnoe Vremya.

Oil exports has declined in volume terms, but not in money

According to the Federal Customs Service (as of 9 August, 2021), the export of crude oil and crude oil products obtained from bituminous minerals from Russia in the first half of 2021 decreased by 11,8% (from 126,3 million tonnes to 111,4 million tonnes). At the same time, in the first half of 2021, 21,5% more money was received for the crude oil exported, namely $47,6 billion (a year earlier for the same period — 39,2 billion rubles).

Oil exports to non-CIS countries, according to the operational summary of the Central Department of Fuel and Energy for the same period, are by 12,1% lower than the corresponding indicator in 2020. At the same time, Russian oil companies have increased oil supplies to neighbouring countries by 34% — up to 6,22 million tonnes.

According to Andrey Maslov, an analyst at Finam Financial Group, the share of foreign countries in 2020 accounted for about 85% of Russian oil exports, and the CIS countries — about 15%.

Vasily Tanurkov, the director of ACRA Corporate Ratings Group, believes that the reduction in exports to foreign countries is due to the recovery of demand in the domestic market while maintaining restrictions on oil production.

“The growth of exports to the CIS countries, I think, is the restoration of production in Belarus," the expert concluded.

For example, according to the Federal Customs Service, 6,95 million tonnes of oil were exported to Belarus in the first half of the year, which is by 34,6% more than a year earlier for the same period (5,16 million tonnes).

Andrey Maslov also confirmed that oil exports to this country have increased, but supplies to other CIS countries have also increased — by about 34%:

“This is largely due to a certain focus on Russia's closest partners, such as the CIS countries and China, which can be traced both in the policy of dollarisation and in the political picture. On the other hand, the capacity increase is taking place gradually, thanks to the easing of oil production quotas under the agreement with OPEC+. The nearest countries for logistical reasons (which are very important during the pandemic) are more willing to accept Russian oil than the more distant countries.

Mikhail Krutikhin, a partner of RusEnergy consulting agency, analyst of the oil and gas sector, noted that it is difficult to talk about Belarus from a market point of view, since these are political considerations:

“How much will they give, whether Belarus will be allowed to export further. The Belarusian regime is a special article and special relationship with Russia. Therefore, they are regulated not by the market, but by some other considerations.”

The US have twice as much black gold

Mikhail Krutikhin focused on other indicators of Russian oil exports:

“Supplies to the United States have increased, and to Europe — decreased slightly. Yes, first we overtook Saudi Arabia in terms of crude oil exports (to the United States), then Mexico, and now we are the second after Canada. Plus, we also have very good oil products coming there.”

According to the Federal Customs Service, 3,44 million tonnes of oil were sent to the United States in the first six months of 2021, which is more than twice the figure of 2020 (1,46 million tonnes).

Vasily Tanurkov noted that the trend to increase the volume of exports to the United States was already observed last year:

“The growth began with the introduction of tough sanctions on Venezuela. A significant part of exports is not even oil, but mazut. American refineries are focused on processing heavy oil, which was mainly supplied by Venezuela. Currently, heavy Russian oil or mazut is being purchased. This is a purely technological issue. It is more profitable for American refineries to buy heavier oil than to convert to lighter oil.”

The expert added that the United States exports light oil, and imports heavy oil — “precisely because of the technologies of the refinery”.

But our strategic partner from the East — China — has slightly reduced (by 12,6%) the volume of imported Russian oil this year. According to the results of the half-year, we exported 33,91 million tonnes to China, a year earlier — 38,81 million tonnes.

Mikhail Krutikhin explained this by the fact that all the logistical capacities of exporting to China were involved: “It's already very difficult to increase there.”

Vasily Tanurkov noted that the share of petroleum products in exports has increased in comparison with crude oil:

“There has been a decrease in the processing of petroleum products, but it has been much less than the drop in production. This is due exclusively to the deal with OPEC+. Now, it is probably more profitable to export crude oil, in comparison with finished oil products. Due to the OPEC + deal, the share of crude oil is going to grow over the next 9 months or a year. As the quotas increase, the share of crude oil will grow within this deal.

Andrey Maslov estimated the ratio of crude oil to petroleum products — about 10 to 6, or 1,35 tonnes of crude oil account for every tonne of petroleum products:

“Thus, it is obvious that Russia exports more crude oil than petroleum products, given that many CIS countries are engaged in refining Russian oil in border cities. In general, it makes sense to increase our own production of petroleum products, since this will not only remove unnecessary mediation, but also create jobs and other benefits, using the multiplier effect. However, for large investment projects and the construction of new refineries, huge investments are required, which may be unprofitable for large players at this stage due to cheaper labour in neighbouring countries, as well as for using fuel as a political tool to reach certain agreements.”

Forecast for oil prices and influence factors

Vasily Tanurkov, making a forecast for Russian oil prices, noted that it is unlikely that it will again reach the level of $80 per barrel or close to it — “then it was too much”:

“In principle, oil prices will be within $67 per barrel in the next six months," the expert concluded.

Finam expects that in the medium term the oil market will enter a state close to balance, after a long period of shortage of “black gold” due to strict regulation by OPEC+:

“So, experts from the EIA expect that in the third quarter of 2021 global oil demand will increase by 2,4% (QOQ) to 90,03 million b/d. At the same time, the supply is expected to reach 98,82 million b/d, but analysts warn that by the end of the year there may be a small shortage of oil in volumes of about 0,20 million b/d. However, many agree that in 2022 an increase in supply is expected in the oil market, which will lead to a decrease in oil prices. In the baseline scenario, we expect that the price of oil in the third quarter will be $67-72 per barrel, and at the end of 2021 — $65-70 per barrel.”

But Mikhail Krutikhin noted “a big price drop” — since the beginning of August, the price has dropped from $77 to $69 per barrel. The expert believes that oil prices do not depend on either OPEC+ or supply and demand:

“We need to look at the financial market, Standard & Poor's 500 has moved, and oil prices have moved following this indicator. There is playing with financial instruments, not with specific barrels. They are playing with messages: unemployment in the United States increases — immediately oil sinks. Reports are exaggerated about the extreme danger of new strains of coronavirus — oil immediately drops. Some information and analytical services, I believe, deliberately exaggerate some news to affect the nerves of market participants. Therefore, it is impossible to predict anything here.”

Yevgeny Khramov