HomeMediaLatest NewsThe rise in prices as a gift: who arranged the oil prices rise at the beginning of the year

The rise in prices as a gift: who arranged the oil prices rise at the beginning of the year

11 January 2021

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department

Marcel Salikhov, Director of the Center for Economic Expertise of the National Research University Higher School of Economics, commented on the prospects for the world oil market development to News.ru.

At the beginning of the week oil prices slightly decreased after rapid growth in the previous days, but remained at around $ 55 per Brent barrel. In the first ten days of January the cost of crude oil increased by almost 8% and rose above $ 56 - for the first time since the end of February 2020.

The main reason for such an optimistic start to the year is the decision of the OPEC + alliance not to rush to increase production of crude oil, experts say. From January 1, 2021, production cuts were to be reduced from 7.7 million barrels per day to 5.8 million, but the parties of the agreement decided to gradually return the volumes to the market. In January, production will increase by 500 thousand barrels per day, and in February, exporting countries will take a break and will not dump additional volumes of raw materials on the market.

Saudi Arabia's Energy Minister Prince Abdel Aziz bin Salman Al Saud said that a number of other states would voluntarily reduce oil production by 425,000 barrels per day. In addition, the countries that violate the OPEC + deal must compensate for the previous lags by the end of March. As a result, in the first quarter, OPEC + participants will supply significantly less oil to the market than at the end of 2020.

Saudi Arabia has already cut additional production last summer at the height of the crisis, Marsel Salikhov, Director of the Center for Economic Expertise of the Higher School of Economics recalls.

“I think that this is how Riyadh positions itself as a leader in the oil market - the one who sets the bar. Also, the Saudi Arabian budget needs a higher oil price than, for example, the Russian budget. In addition, there is a higher share of the oil sector in the economy and a fixed exchange rate of the real to the dollar,” Marsel Salikhov notes.

“Now it is very important, how other oil producers, especially those outside OPEC +, will act. Saudi Arabia, by reducing production and thereby pushing prices up, expects that other countries, that are not members of OPEC + will not or will not be able to replace these volumes in the market. But if the USA, Canada, Brazil have opportunities to increase production, they will use it. And we will again return to the dilemma between high oil prices and market shares,” the expert warns.
At present, according to Salikhov, the oil market has just rushed to $ 60 per barrel, but this level is not sustainable. Even if prices reach this mark during the first quarter, a downward correction will follow. A stable range for a long time now is the $ 45-50 corridor, the expert believes.
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