The fall in oil prices, which is turning into a stable negative trend today, has a dual character-fundamental and speculative - according to industry experts.
In their opinion, one of the fundamental reasons for this phenomenon was the refusal of several countries (in particular Libya) to limit the production of black gold. At the same time, the world economy is currently under the heavy burden of the coronavirus pandemic, which forces states to impose strict quarantine. Serious restrictive measures, in turn, negatively affect the oil demand, and the global market creates a surplus.
Analysts note that low prices for raw materials are especially dangerous for Russia since they directly affect the fullness of its budget and the national welfare Fund, from which it is necessary to borrow a lot of money to support the economy.
Despite this, experts allow an increase in oil prices until the end of this year due to OPEC+ statements about the possibility of new restrictions on black gold production. Perhaps a final decision on this issue will be made in the next few weeks because the members of the organization need to take urgent measures to improve the situation in the market.
Meanwhile, the energy Ministry to comment on that statement is not yet ready, although previously the head of Department Alexander Novak mentioned that the final decision will have to observe how the situation will develop in the oil market during November.
The indecision of OPEC+ participants is explained very simply – jumps in barrel quotes can always be explained by early statements about extending the current conditions for reducing 7.7 million barrels per day for three months of 2021.
However, today, in addition to the COVID-19 pandemic, the market is seriously destabilized by the uncertainty with the US presidential election, which will be lifted by the end of November. By this time, it will become more obvious to what extent production in Libya will increase, which is already about 800 thousand barrels per day. In fact, by the beginning of December, only the story of the coronavirus will remain unpredictable for the raw materials market, and then it will be possible to take some serious steps.
Today, it is difficult to predict the scale and duration of the second wave of the pandemic, but the quarantine measures already taken in several leading economies of the world allow us to conclude that the expected decline in economic activity and a possible reduction in demand for oil and petroleum products. Undoubtedly, in response to this, OPEC+ participants will be forced to launch mechanisms to achieve an optimal balance of supply and demand, at least keeping quotas at the current level or increasing them. The simplest solution in this situation is not to reduce the volume of production cuts from January 2021. However, if the oil demand begins to fall even more confidently, it is possible to return to the maximum reduction level of 9.7 million barrels.