Report: Novak: $65–80/bbl comfortable oil price for Russia in 2022

MOSCOW, Dec 29 (PRIME) -- An oil price of U.S. $65–80 per barrel is comfortable for Russia in 2022, as price volatility cannot be ruled out, Deputy Prime Minister Alexander Novak said in an interview with RBC, released on Wednesday.

“The price is now seen at around $75 per barrel. A price of $65–80 will be comfortable for us next year. I am taking such a wide range because price volatility cannot be ruled out on the market,” he said.

Novak said that Russia’s budget is based on an oil price of $44.2 per barrel in 2022, and the social and economic development outlook envisages larger prices.

Global oil consumption is expected to increase by 4.5–5 million barrels per day in 2021 and by another 4 million barrels in 2022, Novak said, adding that the OPEC+ oil production reduction agreement has demonstrated good performance in 2021.

Novak said he expects oil demand to continue growing in the next decade to 110 million barrels per day in 2030 from 100 million barrels per day in 2020, although oil’s share in the global energy mix will decrease.

He said that the U.S., China, South Korea, the U.K. and India’s decisions to release a total of 50–60 million barrels of oil from their strategic reserves will not influence the market much, and will have an only short-term impact.

The OPEC+ alliance of oil producing countries will continue to exist beyond 2022 under its perpetual cooperation agreement, signed by 24 participants, but no information about any further necessity to balance the oil market is available yet, Novak said.

He added that new kinds of the COVID-19 coronavirus do not already influence the market as strong as they used to.

The OPEC+ countries agreed to reduce their oil output by 9.7 million barrels per day in May 2020 to fight the consequences of the global coronavirus pandemic, with Russia’s share of 2.5 million barrels per day. The cut was narrowed several times, and in August 2021 the alliance decided to soften the production limit by 400,000 barrels per day every month.

Novak said that the Russian government has adjusted the damping mechanism for fuel prices, which was supported by Prime Minister Mikhail Mishustin.

He also said that the indicative price for fuel was reduced by 1,800 rubles in 2021, and was to return to the previous value in 2022, according to the government’s plan, but the plan changed.

“It could have hurt the retail prices, so the government decided to reject the recovery. The indicative price of the damping mechanism will be adjusted by 3%, below inflation,” he said.

Novak also said that the level of compensation of the difference between the export and the indicative prices for gasoline will increase to 83% from 68%, which should “soften the pressure on the retail prices.” The government will also increase the requirement of sales through commodity exchanges to 12% from 11% for gasoline and to 8.5% from 7.5% for diesel fuel.

In 2019, Russia started the final stage of a tax reform in the oil industry, which introduced a so-called damping mechanism aimed at holding down fuel prices on the national market.

Novak said that Russia is ready to increase gas supplies to Europe to satisfy any demand, but it needs long-term contracts, and that the period of high gas prices in Europe will finish as soon as the supply is large enough.

He also said that certification of the Nord Stream-2 natural gas pipeline from Russia to Europe is to be finished at the end of the first half-year of 2022, and Russia hopes that no new requirements will be set by the E.U.

Russia can need Ukraine’s gas transportation system beyond 2024, when the current gas transportation contract expires, if Ukraine offers good price terms and a satisfactory technical condition of the facility.

Novak also said that the recent emergency at the Listvyazhnaya coal mine in the Kemerovo Region has demonstrated that Russia should stop issuing new licenses for coal mining.

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