Economist and financial analyst Nikolai Podlevsky believes in a conversation with the media that oil prices may fall sharply in the next few months due to the impending recession of the global economy. He added that Russia should not bet on oil, which is currently expensive and in short supply.
U.S. Treasury Secretary Janet Yellen talked about mechanisms to reduce Russian oil profits during a visit to Canada. According to Yellen, the initiative developed by the United States and its allies aims to expand the supply of Russian oil to world markets while reducing its costs. She pointed out that the mechanism “will expand and strengthen the energy constraints imposed by Western countries”.
Unfavorable circumstances for the Russian war
“If today’s natural gas landscape is very clear – the European market cannot do without Russian energy transport companies – then everything for oil becomes more complicated,” the analyst noted.
In fact, the market is more globalized, and supply shortages in one region are quickly replaced by supplies from another region. Therefore, Russia’s withdrawal from this program is not that critical for prices, especially in the case of European markets.
The economist said the current price dynamics are due to OPEC+’s difficult stance on maintaining existing production, which is why the EU is trying to ease supply restrictions on Russia. At the same time, according to Podlevsky, expensive oil is also unprofitable for the country itself: stable prices are more ideal for Russia, allowing for long-term planning of production.
“The specific case here is that when extracting oil it is very important to have a planning horizon, in some cases even up to 10 years, otherwise you risk facing huge difficulties. For example, the long-term closure of existing wells will mean They simply will not be able to work again in the future. Otherwise huge investments will be needed to restore production. This is the main problem that further limits possible energy threats,” the economist said.
world economic recession
Analysts believe that the observed price increase is very logical: the prospect of reduced supply naturally leads to higher oil prices. However, he emphasized that Russia supplies only a few million barrels of oil to the world market, and its total consumption reaches 100 million barrels.
“I also want to remind everyone that during the pandemic, consumption fell to 10 million barrels. This shows that the world can cut production, which will be painful, but still possible. And, of course, the world can survive the fall of Russia down. But prices are rising due to general unpredictability and no one knows how events will develop further,” Podlevsky warned.
He added that the price spike is likely to be temporary, so people should not be happy about high prices for small quantities delivered. For Russia, it will be more profitable to choose low-priced options with large and stable quantities.
We don’t know what the price will be tomorrow. Given that we can expect a global recession in the coming months, the problem seems even more unpleasant and complex.
Earlier, US President Joe Biden said that Washington would use various levers to stabilize fuel prices, including reducing energy costs in local markets. In his view, to overcome the global fuel crisis, countries need to make long-term decisions and the international community needs to work together to achieve goals. Biden noted that as Russia conducts special operations in Ukraine, “reliable energy security and stability are needed in the long term.”
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