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Russia's energy minister Novak says oil prices of $70-80/b partly due to sanctions, supply risks: report

Moscow — Current global oil prices at around $70-80/b are due to the volatile situation on the market and include a premium for risks associated with sanctions and oil supply cuts, but they are expected to fall to around $50/b in the long term, Russian energy minister Alexander Novak said Tuesday.

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"According to estimates by experts and companies, oil price will be at around $50/b in the long term. That means that the current situation, when oil prices have risen to $70-80/b, is linked to the temporary situation on the market and includes a premium to the price linked to various risks associated with the introduction of sanctions and oil supply cuts," Novak said, as reported by Russia's Prime news agency.

ICE November Brent futures closed at $78.05/b on Monday, according to S&P Global Platts data.

RUSSIAN OUTPUT

Novak also said he expects Russia's crude production to reach a peak of 570 million mt, or about 11.445 million b/d, in 2021, before declining to 310 million mt in 2035, if no additional measures are taken to stimulate oil producers.

This year, Novak expects Russia to produce 553 million mt, of crude, he said. The volume would represent a 1% rise compared with the volume produced last year, when the country was holding back its output as agreed under the OPEC/non-OPEC deal.

The coalition's agreement to cut a combined 1.8 million b/d, in place since January 2017, was aimed at lifting and stabilizing oil prices. With Brent trading above $70/b, the coalition decided in late June on a joint output lift as of July.

Russia boosted its output to 11.21 million b/d last month, up from 11.066 million b/d produced in June, according to the Central Dispatching Unit, the statistical arm of the energy ministry.

Along with reducing crude production after 2021, Novak said he also expects the state revenues to start dropping as of 2022.

"As of 2022, we may see negative dynamics of budget revenues. The total yearly tax revenue may drop by Rb3.3 trillion [$48.5 billion] per year, and investment by Rb1.3 trillion," he said. "This is...an inevitable result of rising production costs and excessive tax burden at existing fields and regions of West Siberia."

--Nastassia Astrasheuskaya, nastia.astrasheuska@spglobal.com

--Edited by James Leech, james.leech@spglobal.com