Predicting oil prices is the last thing, but it is already difficult to remain silent. Over the past three weeks, the price of Brent has collapsed by more than 15%, falling on November 21 below the level of $83 per barrel in the nearest futures. As if soon the European market will not lose about 1 million barrels per day of Russian supplies, which it is not yet clear how to make up.
The trigger for the decline in oil prices on November 21 was the fear of new quarantine restrictions in China, as well as the publication of the WSJ about a possible increase in OPEC + production following the meeting on December 4. As for China, we are talking about a possible tightening of lockdowns, which remain quite tough anyway. Although China, as the world’s largest oil importer, has a huge impact on the market, at the moment it is impossible to understand how seriously the lockdowns, if they really increase in scale, will affect consumption in the country. Riyadh officially refuted the publication of the WSJ on the same day. In any case, it was about the growth of the OPEC + quota by only 500 thousand barrels per day. Since in reality only Saudi Arabia and the United Arab Emirates can quickly increase production within the cartel, in December the supply may increase by only 150-200 thousand barrels per day, which is five times less than the potential drop in Russian supplies. There is a feeling that the market is completely ignoring the potentially dangerous consequences of European sanctions on the sea transportation of Russian oil to third countries, believing that the situation with supplies from Russia to India and China will remain the same as it was before December 5th. Meanwhile, never before have such sanctions been imposed on such a major oil supplier as Russia. Although no one knows exactly what this will look like, my interlocutors in the industry expect port disruptions, force majeure, pilotage problems, and thousands of other similar inconsistencies, the combination of which could even lead to panic in local markets. Besides, it seems to me that there is a wrong concept in the market, according to which, after the embargo, Russian oil companies will try to “push” cargo at any price. In fact, I believe that companies will prefer to significantly reduce production in order to sell at an affordable price and at the same time be confident in logistics. The head of Zarubezhneft, Sergey Kudryashov, said in October that it was uncritical for the company to reduce production at the moment by even 70%. Given the sorry state of oil stocks in the West—and in the US, commercial and strategic oil stocks combined are the lowest since March 2001—such a shock will not be easy to absorb, especially quickly. And the fact that while the market does not include in quotes the possibility of such a development of events, only increases the likelihood of a sharp reaction later.