"Oil prices under influence of geopolitics"

"Oil prices under influence of geopolitics"

Russia's Energy Ministry is not able to predict oil prices, the country's acting Energy Minister Alexander Novak said.

Novak said that global oil prices are currently under the influence of geopolitics but "fundamentally the market is balancing out." 

The Russian minister also noted that OPEC has "all the tools to balance the market" following the US decision to withdraw from the Iran nuclear deal.

According to him, it is too early to say what the impact of the US decision on the oil market will be. "In any case, we have all the tools that could be used to balance the market," Novak said.

"We will monitor the situation. In principle, as they said, the sanctions will resume within 180 days so we need to see how market reacts. It is too early now to say anything. Anyway, we have all the tools, which can be used to balance the market," he said.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, speaking with a correspondent of Vestnik Kavkaza, noted that despite the price increase after the US withdrawal from the Iran nuclear deal, the OPEC+ agreement on oil output cuts could be continued. "The sanctions on Iran provide a certain room for maneuver. If Iran falls under sanctions, it may reduce output, but in this case, other OPEC+ participants, primarily Russia and Saudi Arabia, can agree on redistributing Iran's quota and raising its output on the amount of lost Iranian volumes. That is, nothing will change within the framework of the OPEC+ agreement, thus the issue of closing the deal will be partially removed," he pointed out.

"Now everyone thinks about closing the deal, thinking like this: let's start making more money, increasing output and selling at oil price above $75 per barrel. Everyone wants to do this, but understands that as soon they say about the completion of the deal, traders will immediately begin sell futures and the price will decline. And if Russia and Saudi Arabia increase production at the expense of Iran, we will again return to $40-50 per barrel. Of course, if Iran drops out, other OPEC+ members will say about sharing its quota with each other, the price will also decline, but the reaction of the investor to be softer," Igor Yushkov said.

"If the US says that the sanctions apply to all companies in the world, it will create significant problems for Tehran, but it is unlikely that the US decides to take such a tough stance. The only thing the Americans can do is prohibiting all companies from insuring tankers loaded with Iranian oil, which means they will have to look for companies that are not present in the US market and ready to supply Iranian oil. The scheme for selling Iranian oil will become more complicated, but there will be no such a drop in production as it was in 2011-2012," the leading analyst of the National Energy Security Fund predicts.

A senior analyst of 'Uralsib Capital', Alexei Kokin, in turn, noted that after the resumption of US sanctions on Iran, it may be necessary to review the terms of the OPEC+ deal. "This would be necessary to determine a new level of quotas for each participant. This November restrictive measures will be fully implemented. If Iran is unable to sell oil through its traditional sales channels, then, according to some analysts, there is a risk of leaving significant volumes from the market by the end of the year. At the same time, even if these volumes are at the level of 200-300 thousand barrels per day, they still have to be replaced in some way," the expert said.

According to him, this could force the OPEC countries and other participants of the deal to discuss the new distribution of volumes between the countries. "There are several other factors that are currently increasing oil prices: Venezuela with its chronic crisis and the drop in Angola's output. It could force Saudi Arabia, Russia, and OPEC in general to differently define production quotas. I do not think that the deal will disintegrate, because the cooperation between OPEC and not OPEC, primarily Saudi Arabia and Russia, is of a long-term nature. I believe the deal could be simply modified," Alexei Kokin summed up.