A barrel fell below forecasts: what is the threat of cheap oil to the Russian economy

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented to the Profil business magazine on possible scenarios for the world oil prices dynamics in 2025.

According to Alexey Gromov, the observed collapse in oil prices can be considered a "short-term story." While it has not reached a real trade war, there are no "fundamental grounds" for changing the balance between supply and demand, there is only concern among traders about the loud statements of politicians. Consequently, it is at least premature to predict a new decline in oil prices.

Further events, according to Gromov, can develop according to three scenarios.

First, Washington will come to a compromise with all its trading partners, including Beijing, in the next 90 days. In this case, the decline stops and oil prices stabilize in the range of $65-70 per barrel (for the Brent brand). Russian Urals oil will be traded at a discount, which traditionally amounts to about $11-12. The possible benefit of this is that our oil will be sold cheaper than the price cap, and therefore there will be no problems with its supply to other countries (restrictions on ship chartering, insurance, etc.). Logistics costs will decrease, and many states will want to return to trading our oil, which will increase competition between carriers.

The second scenario is a negative one. It assumes a full-scale trade war between the United States and China and, as a result, a slowdown in the Chinese and global economies. According to Beijing's official forecast, the country's GDP is expected to grow by 5% this year; the International Monetary Fund predicted growth of 4.6%. According to Gromov, a decrease in this indicator by even 1 percentage point threatens to reduce oil demand and drop prices below $ 60 per barrel. In this case, the price of the Russian Urals brand will be below $50 per barrel. So far, this scenario is "less likely."

Finally, there is a third scenario, "which can break both previous ones," a military conflict in the Middle East. We are talking about a possible US strike on Iran.

"In the event of a military conflict with Iran, the United States may introduce a temporary exception to the price cap rule in order to ensure uninterrupted supplies of Russian oil and not completely break the balance between supply and demand," Alexey Gromov believes.