For several reasons, last week was one of the most active ones, politically speaking, in an already hectic 2020. Activities included heated discussions in the US Congress around a self-imposed deadline to present an economic package, the US presidential debate, and angry opposition throughout Europe due to the implementation of new curfews in different regions.
Oil markets also saw divergent positions on the best approach for balancing the oil market during the upcoming months when the technical OPEC committee met last week. Without a clear message, the committee ended up expressing the need for the cartel to remain vigilant and flexible in reacting to the impact of COVID-19. A number of the statements were contradictory with some members expressing the need to focus on those few countries that have been exceeding production quotas during the past few months, while other meeting participants were more focused on strategies for balancing the oil market in 2021. Consequently, the meeting did not result in a clear agreement on the root causes of the problems being faced by the oil market, nor a clear strategy on how and when OPEC+ should take action in the future.
But in all this seemingly chaotic collection of messages and interpretations, Vladimir Putin expressed two messages that are more important to oil markets than some realize, as the messages addressed the short-term and the long-term:
- From a short-term perspective he clearly expressed that the current OPEC+ plan is currently an appropriate approach. However, he also expressed the view that he is open to course adjustments, if warranted by market conditions. In a few words he preempted further fear of a price war with Saudi Arabia by setting the record straight about Russia’s position, and overshadowing Novak’s recent statements regarding strict adherence to the April agreement and intent to increase crude production in January, despite current COVID jitters.
- From a longer-term perspective, Putin expressed his view in a few words that oil will continue to play a prevalent role for the next 30-50 years. He questioned the feasibility of displacing oil in several sectors and indirectly gave reassurance to long-term investors that, despite announcements related to energy transition, the oil business will still be attractive in the long term (by the way, this view aligns more closely with our long-term reference scenario than the views of those predicting a more accelerated transition away from oil).
The statements from President Putin represent a clear view from a leading crude producer: the type of statements that in the past could be expected from major Middle East producers, but for now are more focused on making announcements pertaining to investments in renewables, while downplaying the importance of crude by 2050.
This weekly report is an excerpt from our Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels. Contact Jaime Brito (+1.713-377-0706 or E-mail) for the detailed analysis or for more information about the Short Term Outlook.