The recent rise in crude prices was predictable and this upward trend is likely to persist, according to Ivan Grachev, Chairman of the Russian State Duma Committee of Energy. Crude prices have rallied from lows around US$26/p/b to trade close to US$35p/b last week.
In an interview for the radio service Ruskaja Novostei, Mr Grachev said: “In my opinion, the times when attempts were made to defeat Russia in a so-called ‘oil war’ are over. People are starting to look more realistically at the world and at Russia, and in the medium term the price of crude will continue to grow.”
In his opinion, an increase in the commodity prices is related to the insufficient level of investment in the oil industry. According to Mr Grachev, if the period of “freezing” of spending on new investments continues for the next three years, the price of oil could soar to as much as $200 a barrel.
Ecuador’s President Rafael Correa expressed a similar opinion back in February, when he said in a televised debate: “Such low oil prices are not good for anyone, they are not sustainable,” adding that oil prices are so low that are likely to “bounce and destabilize the market and the (world’s) economy.”
Correa said there are strong indications that an agreement between Opec and non-Opec producers to freeze production will be reached at a meeting in mid-March. “Having Russia and Saudi Arabia open to sit and talk is something that really has no precedent,” he said.
“In the March Opec meeting, the next step could be taken, which is to agree to reduce 5pc of our output. If Opec and non-Opec oil-exporting nations reduce their production, oil prices can recover sooner,” Correa said.
Last week global crude prices rose in response to a drop in the number of wells in the United States. The U.S. oil rigs fell by 8 to 392 last week, the lowest level since December 2009, according to Baker Hughes Inc. As a result, Brent for May settlement rose $2.12, or 5.5 percent, to $40.84 a barrel on the London-based ICE Futures Europe exchange, the highest close since December 4th. The grade gained for a sixth day, the longest rally since Nov. 25. The global benchmark crude was at a premium of $1.02 to West Texas Intermediate for May.
Energy ministers of Russia, Saudi Arabia, Venezuela and Qatar agreed on February 16th to freeze the production of oil after the negotiations in Doha. Oil output will be stabilized at the level of January 11, if other major exporters follow suit.
Speaking to Azer News, Omid Shokri Kalehsar, an energy analyst, said that the agreement will have a short-term effect on oil prices, since it is contingent on other countries also cutting production, which is not likely to happen.
He expressed a belief that if all OPEC members and non-members, such as Russia, were to freeze oil production one could expect an increase in oil prices in a mid-term.
“But it is reality that oil market has about 250,000-300,000 barrels per day oversupply,” he noted. “Oil producing countries have to make a decision to decrease oversupply capacity and after such a decision we can be hopeful about oil prices’ future.”
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